Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-33746
TM ENTERTAINMENT AND MEDIA, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State of incorporation)
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20-8951489
(I.R.S. Employer Identification No.) |
307 East 87th Street
New York, NY 10128
(212) 289-6942
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
Units, each consisting of one share of
Common Stock, $0.001 par value, and one
Warrant
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American Stock Exchange |
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Common Stock included in the Units
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American Stock Exchange |
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Warrants included in the Units
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American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes o No þ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes þ No o
Issuers Revenues for the fiscal period ended December 31, 2008 were $0.
The aggregate market value of the registrants voting and non-voting common equity held by
non-affiliates of the registrant computed by reference to the closing sales per price for the
registrants common stock on June 30, 2008, as reported on the NYSE Amex on such date, was
approximately $74,964,050.
As of
March 30, 2009, 12,505,000 shares of the Issuers common stock, par value $0.001, were
outstanding.
Documents Incorporated by Reference: None.
Forward-Looking Statements
This Annual Report on Form 10-K, and the information incorporated by reference in it, include
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the
Securities Act), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended
(the Exchange Act). Our forward-looking statements include, but are not limited to statements
regarding our expectations, hopes, beliefs, intentions or strategies regarding the future. In
addition, any statements that refer to projections, forecasts or other characterizations of future
events or circumstances, including any underlying assumptions, are forward-looking statements. The
words anticipate, believe, continue, could, estimate, expect, intend, may, might,
plan, possible, potential, predict, project, should, would and similar expressions
may identify forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking. Forward-looking statements in this report may include, for
example, statements about our:
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Ability to complete a combination with one or more target businesses; |
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Success in retaining or recruiting, or changes required in, our management or
directors following a business combination; |
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Potential inability to obtain additional financing to complete a business
combination; |
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Limited pool of prospective target businesses; |
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Potential change in control if we acquire one of more target businesses for
stock; |
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Public securities limited liquidity and trading; |
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The delisting of our securities from the American Stock Exchange or an
inability to have our securities listed on the American Stock Exchange following a
business combination; |
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Use of proceeds not in trust or available to us from interest income on the
trust account balance; or |
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Financial performance. |
The forward-looking statements contained or incorporated by reference in this Annual Report on
Form 10-K are based on our current expectation and beliefs concerning future developments and their
potential effects on us and speak only as of the date of such statement. There can be no assurance
that future developments affecting us will be those that we have anticipated. These forward-looking
statements involve a number of risks, uncertainties (some of which are beyond our control) or other
assumptions that may cause actual results or performance to be materially different from those
expressed or implied by these forward-looking statements. These risks and uncertainties include,
but are not limited to, those factors described under the heading Risk Factors. Should one or
more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect,
actual results may vary in material respects from those projected in these forward-looking
statements. We undertake no obligation to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as may be required under
applicable securities laws.
References in this report as to we, us or our Company refer to TM Entertainment and
Media, Inc. References to public stockholders refer to holders of shares of common stock sold as
part of the units in our initial public offering, including any of our stockholders existing prior
to our initial public offering to the extent that they purchased or acquired such shares.
ITEM 1. BUSINESS
Introduction
We are a Delaware blank check company incorporated on May 1, 2007 in order to serve as a
vehicle for the acquisition of an operating business in the entertainment, media, digital and
communications industries and to seek out opportunities both domestically and internationally to
take advantage of our management teams experience in these markets. The entertainment, media,
digital and communications industries encompass those companies which create, produce, deliver,
own, distribute or market entertainment and information content, products and services and include
among others:
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broadcast television; |
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cable, satellite and terrestrial television content delivery; |
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motion picture, television, DVD and video content production and distribution; |
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advanced communications networks and devices; |
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user-generated media; |
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newspaper, book, magazine, and specialty publishing; |
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motion picture exhibition and related services; |
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radio services via broadcast and satellite; |
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video game production and distribution; |
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broadband network operations; |
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Internet service providers; |
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Internet media production and distribution; |
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interactive commerce and e-commerce; |
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voice, video and data transmission platforms and services; |
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content distribution systems, networks and services; |
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content production and aggregation services; |
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media portability products and services; |
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interactive television products and services; |
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advertising agencies and other advertising services; |
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direct marketing and promotional services; |
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media and marketing services; |
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advertising based directories; |
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recorded music and other audio content production and distribution; |
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theme park attractions; |
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toy development and distribution; |
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trading cards; |
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intellectual property licensing, merchandising and exploitation; and |
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live event entertainment and venue management. |
Our management team has extensive experience in the entertainment, media, digital and
communications industries as senior executives, business consultants or entrepreneurs. See
Management.
We intend to leverage the industry experience of our executive officers by focusing our
efforts on identifying a prospective target business in the entertainment, media, digital and
communications industries. We believe that companies involved in these industries represent
attractive acquisition targets for a number of reasons, including a favorable economic environment
for these industries, potentially attractive valuations and the large number of middle market
acquisition candidates.
We believe, based solely on our managements collective business experience, that there are
numerous business opportunities in the entertainment, media, digital and communications industries.
However, we cannot assure our stockholders that we will be able to locate a target business in such
industries or that we will be able to engage in a business combination with a target business on
favorable terms.
Growth in this industry has historically been driven by the introduction of new technologies
and the expansion of domestic and international markets. The latter part of the 20th century
witnessed the introduction and consumer acceptance of cable television, home video, video games and
compact discs. The 1990s witnessed the emergence of additional products and improved delivery
systems such as interactive multimedia entertainment software, simulator and virtual reality
attractions and fiber optic cable. The beginning of the 21st century has witnessed even greater
expansion as the emergence of next-generation technologies has significantly strengthened growth
opportunities for television distribution through direct broadcast satellite and digital cable,
video games, Internet access and home video. The emergence of the DVD and CD-ROM formats has
further increased this expansion.
Effecting a business combination
General.
We are not presently engaged in, and we will not engage in, any substantive commercial
business for an indefinite period of time. We intend to utilize cash derived from the proceeds of
our initial public offering, our capital stock, debt or a combination of these in effecting a
business combination. Although substantially all of the net proceeds of our initial public offering
are intended to be applied generally toward effecting a business combination, the proceeds were not
otherwise designated for any more specific purposes. A business combination may involve the
acquisition of, or merger with, a company which does not need substantial additional capital but
which desires to establish a public trading market for its shares, while avoiding what it may deem
to be adverse consequences of undertaking a public offering itself. These include time delays,
significant expense, loss of voting control and compliance with various Federal and state
securities laws. In the alternative, we may seek to consummate a business combination with a
company that may be financially unstable or in its early stages of development or growth. While we
may seek to effect simultaneous business combinations with more than one target business, we will
probably have the ability, as a result of our limited resources, to effect only a single business
combination.
We are currently in the process of identifying and evaluating targets for an initial business
combination. We have not entered into any definitive business combination agreement.
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Sources
of target businesses.
We anticipate that our officers and directors as well as their affiliates will bring to our
attention target business candidates. While our officers and directors make no commitment as to the
amount of time they will spend trying to identify or investigate potential target businesses, they
believe that the various relationships they have developed over their careers, together with their
direct inquiry, will generate a number of potential target businesses that will warrant further
investigation. As senior executives, business consultants and entrepreneurs in the entertainment,
media, digital and communications industries, members of our management team have been, and are
likely to continue to be, presented with proposals and offers of many varieties with respect to
prospective investments and transactions. They may also become aware of potential transaction
opportunities by attending entertainment, media, digital and communications conferences or
conventions. We may consider any affiliates of our officers, directors, and stockholders as
potential business combination targets.
Target business candidates may also be brought to our attention from various unaffiliated
sources, including investment bankers, venture capital funds, leveraged buyout funds, hedge funds,
management buyout funds and other members of the financial community who are aware that we are
seeking a business combination partner via public relations and marketing efforts, direct contact
by management or other similar efforts and who may present solicited or unsolicited proposals. We
may pay finders fees or compensation to third parties for their efforts in introducing us to
potential target businesses which we would negotiate at the time. Such payments, which are
typically based on the dollar value of the transaction, could be paid to entities we engage for
this purpose or ones that approach us on an unsolicited basis. In no event, however, will we pay
any of our initial officers, directors, or stockholders or any entity with which they are
affiliated any finders fee or other compensation for services rendered to us prior to or in
connection with the consummation of a business combination. In addition, none of our officers,
directors, or initial stockholders will receive any finders fee, consulting fees or any similar
fees from any person or entity (including a target company) in connection with any business
combination involving us other than any compensation or fees that may be received for any services
provided following such business combination. A prohibition on such fees is contained in our Code
of Ethics. Any compensation or fees that our officers and directors receive from a target company
following a business combination will be customary for a transaction of this type, including
compensation as either an employee or consultant and director fees. Although our officers and
directors may take compensation or fees into consideration as one of the factors in determining
which acquisition transaction to pursue, such compensation and fees will not be the determining
factor.
Selection
of a target business and structuring of a business combination.
Subject to the requirement that our initial business combination must be with a target
business with a fair market value that is at least 80% of our net assets at the time of such
acquisition, our management will have virtually unrestricted flexibility in identifying and
selecting a prospective target business. We have not established any other specific attributes or
criteria (financial or otherwise) for prospective target businesses. In evaluating a prospective
target business, our management may consider a variety of factors, including one or more of the
following:
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financial condition and results of operation; |
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experience and skill of management and availability of additional personnel; |
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stage of development of the products, processes or services; |
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degree of current or potential market acceptance of the products, processes or services; |
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proprietary features and degree of intellectual property or other protection of the
products, processes or services; |
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regulatory environment of the industry; and |
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costs associated with effecting the business combination. |
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These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a
particular business combination will be based, to the extent relevant, on the above factors as well
as other considerations deemed relevant by our management in effecting a business combination
consistent with our business objective. In evaluating a prospective target business, we will
conduct an extensive due diligence review which will encompass, among other things, meetings with
incumbent management and inspection of facilities, as well as review of financial and other
information which is made available to us. This due diligence review will be conducted either by
our management or by unaffiliated third parties we may engage. We intend to have all prospective
target businesses execute agreements with us waiving any right, title, interest or claim of any
kind in or to any monies held in the trust account. If any prospective target business refused to
execute such agreement, it is unlikely we would continue negotiations with such target business.
However, in no event will we enter into a definitive agreement for a business combination with a
target business unless such entity executes a waiver agreement.
The time and costs required to select and evaluate a target business and to structure and
complete the business combination cannot presently be ascertained with any degree of certainty. Any
costs incurred with respect to the identification and evaluation of a prospective target business
with which a business combination is not ultimately completed will result in a loss to us and
reduce the amount of capital available to otherwise complete a business combination. While we are
entitled to have released to us for the purpose of, among other things, covering such costs up to
$1.5 million of interest earned on the funds, the trust account as discussed elsewhere herein, we
have received the full amount allowed and accordingly we may need to borrow funds from our initial
stockholder to operate. Our initial stockholders are under no obligation to advance funds to us.
Fair
market value of target business.
The target business or businesses that we acquire must collectively have a fair market value
equal to at least 80% of our net assets at the time of such acquisition, although we may acquire a
target business whose fair market value significantly exceeds 80% of our net assets. We anticipate
structuring a business combination to acquire 100% of the equity interests or assets of the target
business. We may, however, structure a business combination to acquire less than 100% of such
interests or assets of the target business but will not acquire less than a controlling interest
(which would be at least 50% of the voting securities of the target business). If we acquire only a
controlling interest in a target business or businesses, the portion of such business that we
acquire must have a fair market value equal to at least 80% of our net assets. In order to
consummate such an acquisition, we may issue a significant amount of our debt or equity securities
to the sellers of such businesses or seek to raise additional funds through a private offering of
debt or equity securities. We have not entered into any such fund raising arrangement. The fair
market value of the target will be determined by our board of directors based upon one or more
standards generally accepted by the financial community (such as actual and potential sales,
earnings and cash flow or book value). If our board is not able to independently determine that the
target business has a sufficient fair market value, we will obtain an opinion from an unaffiliated,
independent investment banking firm with respect to the satisfaction of such criteria. Since any
opinion, if obtained, would merely state that fair market value meets the 80% of net assets
threshold, it is not anticipated that copies of such opinion would be distributed to our
stockholders, although copies will be provided to our stockholders who request it. We will not be
required to obtain an opinion from an investment banking firm as to the fair market value if our
board of directors independently determines that the target business complies with the 80%
threshold. Such investment banking firm will be a member of the National Association of Securities
Dealers, Inc. reasonably acceptable to the representative of the underwriters, and our stockholders
may or may not be entitled to rely on such opinion, depending on circumstances at the time. While
we will consider whether such an opinion may be relied on by our stockholders, it will not be
dispositive as to which investment bank we seek a fairness opinion from. Other factors contributing
to such a determination are expected to include, among others: reputation of the independent
investment bank, specifically their knowledge in our particular industry, timing and cost of
providing the opinion.
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Lack
of business diversification.
Our business combination must be with a target business or businesses that collectively
satisfy the minimum valuation standard at the time of such acquisition, as discussed above,
although this process may entail the simultaneous acquisitions of several operating businesses at
the same time. Therefore, at least initially, the prospects for our success may be entirely
dependent upon the future performance of a single business. Unlike other entities which may have
the resources to complete several business combinations of entities operating in multiple
industries or multiple areas of a single industry, it is probable that we will not have the
resources to diversify our operations or benefit from the possible spreading of risks or offsetting
of losses. By consummating a business combination with only a single entity, our lack of
diversification may:
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subject us to numerous economic, competitive and regulatory developments, any or all of
which may have a substantial adverse impact upon the particular industry in which we may
operate subsequent to a business combination, and |
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result in our dependency upon the performance of a single operating business or the
development or market acceptance of a single or limited number of products, processes or
services. |
If we determine to simultaneously acquire several businesses and such businesses are owned by
different sellers, we will need for each of such sellers to agree that our purchase of its business
is contingent on the simultaneous closings of the other acquisitions, which may make it more
difficult for us, and delay our ability, to complete the business combination. With multiple
acquisitions, we could also face additional risks, including additional burdens and costs with
respect to possible multiple negotiations and due diligence investigations (if there are multiple
sellers) and the additional risks associated with the subsequent assimilation of the operations and
services or products of the acquired companies in a single operating business.
Limited
ability to evaluate the target business management.
Although we intend to scrutinize the management of a prospective target business when
evaluating the desirability of effecting a business combination, we cannot assure our stockholders
that our assessment of the target business management will prove to be correct. In addition, we
cannot assure our stockholders that the future management will have the necessary skills,
qualifications or abilities to manage a public company. Furthermore, the future role of our
officers and directors, if any, in the target business following a business combination cannot
presently be stated with any certainty. While it is possible that some of our key personnel will
remain associated in senior management or advisory positions with us following a business
combination, it is unlikely that they will devote their full time efforts to our affairs subsequent
to a business combination. Moreover, they would only be able to remain with the company after the
consummation of a business combination if they are able to negotiate employment or consulting
agreements in connection with the business combination. Such negotiations would take place
simultaneously with the negotiation of the business combination and could provide for them to
receive compensation in the form of cash payments or our securities for services they would render
to the company after the consummation of the business combination. While the personal and financial
interests of our key personnel may influence their motivation in identifying and selecting a target
business, their ability to remain with the company after the consummation of a business combination
will not be the determining factor in our decision as to whether or not we will proceed with any
potential business combination. Additionally, we cannot assure our stockholders that our officers
and directors will have significant experience or knowledge relating to the operations of the
particular target business.
Following a business combination, we may seek to recruit additional managers to supplement the
incumbent management of the target business. We cannot assure our stockholders that we will have
the ability to recruit additional managers, or that any such additional managers we do recruit will
have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
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Opportunity
for stockholder approval of business combination.
Prior to the completion of a business combination, we will submit the transaction to our
stockholders for approval, even if the nature of the acquisition is such as would not ordinarily
require stockholder approval under applicable state law. In connection with any such transaction,
we will also submit to our stockholders for approval a
proposal to amend our amended and restated certificate of incorporation to provide for our
corporate life to continue perpetually following the consummation of such business combination. Any
vote to extend our corporate life to continue perpetually following the consummation of a business
combination will be taken only if the business combination is approved. We will only consummate a
business combination if our stockholders vote both in favor of such business combination and our
amendment to extend our corporate life.
In connection with seeking stockholder approval of a business combination, we will furnish our
stockholders with proxy solicitation materials prepared in accordance with the Securities Exchange
Act of 1934, as amended, which, among other matters, will include a description of the operations
of the target business and audited historical financial statements of the business.
In connection with the vote required for any business combination, all of our initial
stockholders, including all of our officers and directors, have agreed to vote their respective
initial shares in accordance with the majority of the shares of common stock voted by the public
stockholders. If the majority of public stockholders voting at the meeting, regardless of percent,
vote to approve the business combination, our initial stockholders will vote all shares owned by
them prior to our initial public offering in favor of the business combination. Similarly, if the
majority of public stockholders voting at the meeting, regardless of percent, vote against the
business combination, our initial stockholders will vote all shares owned by them prior to our
initial public offering against the business combination. This voting arrangement shall not apply
to shares included in units purchased in our initial public offering or purchased following our
initial public offering in the open market by any of our initial stockholders, officers and
directors. Accordingly, they may vote these shares on a proposed business combination any way they
choose. We will proceed with the business combination only if a majority of the shares of common
stock voted by the public stockholders are voted in favor of the business combination and public
stockholders owning less than 30% of the shares sold in our initial public offering both exercise
their conversion rights and vote against the business combination.
Our threshold for conversion rights has been established at 29.99% as it reduces the
likelihood that a small group of investors holding a large block of our stock will exercise undue
influence on the approval process and be able to stop us from completing a business combination
that is otherwise approved by a large majority of our public stockholders.
Conversion
rights.
At the time we seek stockholder approval of any business combination, we will offer each
public stockholder the right to have such stockholders shares of common stock converted to cash if
the stockholder votes against the business combination and the business combination is approved and
completed. Our initial stockholders will not have such conversion rights with respect to the
initial shares, but will have such conversion rights with respect to any shares they purchase in
our initial public offering or in the aftermarket. The actual per-share conversion price will be
equal to the amount in the trust account, inclusive of any interest (calculated as of two business
days prior to the consummation of the proposed business combination), divided by the number of
shares sold in our initial public offering. Without taking into account any interest earned on the
trust account, the initial per-share conversion price would be approximately $7.90.
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An eligible stockholder may request conversion at any time after the mailing to our
stockholders of the proxy statement and prior to the vote taken with respect to a proposed business
combination at a meeting held for that purpose, but the request will not be granted unless the
stockholder votes against the business combination and the business combination is approved and
completed. Additionally, we may require public stockholders, whether they are a record holder or
hold their shares in street name, to either tender their certificates to our transfer agent at
any time through the vote on the business combination or to deliver their shares to the transfer
agent electronically using Depository Trust Companys DWAC (Deposit/Withdrawal At Custodian)
System, at the holders option. The proxy solicitation materials that we will furnish to
stockholders in connection with the vote for any proposed business combination will indicate
whether we are requiring stockholders to satisfy such certification and delivery requirements.
Accordingly, a stockholder would have from the time we send out our proxy statement through the
vote on the business combination to tender his shares if he wishes to seek to exercise his
conversion rights, a period that will not be less than 10, nor more than 60, days. This time period
varies depending on the specific facts of each transaction. However, as the delivery process can be
accomplished by the stockholder, whether or not he is a record holder or his shares are held in
street name, in a matter of hours (because the transfer is made electronically once final
instruction is given to Depository Trust Company) by simply contacting the transfer agent or his broker and requesting delivery
of his shares through the DWAC System, we believe this time period is sufficient for an average
investor. However, because we do not have any control over this process, it may take significantly
longer than we anticipated. Additionally, if the shares of common stock cannot be transferred
through the DWAC system, the process may take such number of days required to complete the proper
paperwork, obtain the necessary authorizations and consents and to locate and deliver physical
stock certificates, if any. Traditionally, in order to perfect conversion rights in connection with
a blank check companys business combination, a holder could simply vote against a proposed
business combination and check a box on the proxy card indicating such holder was seeking to
convert. After the business combination was approved, the company would contact such stockholder to
arrange for him to deliver his certificate to verify ownership. As a result, the stockholder then
had an option window after the consummation of the business combination during which he could
monitor the price of the stock in the market. If the price rose above the conversion price, he
could sell his shares in the open market before actually delivering his shares to the company for
cancellation. Thus, the conversion right, to which stockholders were aware they needed to commit
before the stockholder meeting, would become a right of conversion surviving past the consummation
of the business combination and which we would be obligated to honor until the converting holder
delivered his certificate. The requirement for physical or electronic delivery prior to the meeting
ensures that a converting holders election to convert is irrevocable once the business combination
is approved. There is a nominal cost associated with the above-referenced tendering process and the
act of certificating the shares or delivering them through the DWAC system. The transfer agent will
typically charge the tendering broker $35 and it would be up to the broker whether or not to pass
this cost on to the converting holder. This fee would be incurred regardless of whether or not we
require holders seeking to exercise conversion rights to tender their shares prior to the meeting.
The need to deliver shares is a requirement of conversion regardless of the timing of when such
delivery must be effectuated. Accordingly, this would not result in any increased cost to
shareholders when compared to the traditional process; however, in the event a stockholder elects
conversion of their shares of common stock but the proposed business combination is not approved, a
stockholder will have paid $35 to elect conversion but would not actually have their shares of
common stock converted. Further, it is possible this tendering process will be cost-prohibitive for
stockholders in the event their aggregate holdings of our shares of common stock do not exceed $35.
Any request for conversion, once made, may be withdrawn at any time up to the vote taken with
respect to the proposed business combination. Furthermore, if a stockholder delivered his
certificate for conversion and subsequently decided prior to the meeting not to elect conversion,
he may simply request that the transfer agent return the certificate (physically or
electronically). It is anticipated that the funds to be distributed to stockholders entitled to
convert their shares who elect conversion will be distributed promptly after completion of a
business combination. Public stockholders who convert their stock into their share of the trust
account still have the right to exercise any warrants they still hold.
If a vote on our initial business combination is held and the business combination is not
approved, we may continue to try to consummate a business combination with a different target until
twenty four months from the date of our initial public offering. If the initial business
combination is not approved or completed for any reason, then public stockholders voting against
our initial business combination who exercised their conversion rights would not be entitled to
convert their shares of common stock into a pro rata share of the aggregate amount then on deposit
in the trust account. In such case, if we have required public stockholders to tender their
certificates prior to the meeting, we will promptly return such certificates to the tendering
public stockholder. Public stockholders would be entitled to receive their pro rata share of the
aggregate amount on deposit in the trust account only in the event that the initial business
combination they voted against was duly approved and subsequently completed, or in connection with
our liquidation.
7
We will not complete any business combination if public stockholders, owning 30% or more of
the shares sold in our initial public offering, both exercise their conversion rights and vote
against the business combination. Accordingly, it is our understanding and intention in every case
to structure and consummate a business combination in which public stockholders owning 29.99% of
the shares sold in our initial public offering may exercise their conversion rights and the
business combination will still go forward.
If our business combination requires us to use substantially all of our cash to pay the
purchase price, because we will not know how many stockholders may exercise their conversion
rights, we may either need to reserve part of the trust account for possible payment upon such
conversion, or we may need to arrange third party financing to help fund our business combination
in case a larger percentage of stockholders exercise their conversion rights than we expect.
Therefore, we may not be able to consummate a business combination that requires us to use all of
the funds held in the
trust account as part of the purchase price, or we may end up having to adjust the ratio of
cash to stock used as consideration or arrange for third party financing.
Investors in our initial public offering who do not sell, or who receive less than an
aggregate of approximately $0.10 of net sales proceeds for, the warrants included in the units, or
persons who purchase common stock in the aftermarket at a price in excess of $7.90 per share, may
have a disincentive to exercise their conversion rights because the amount they would receive upon
conversion could be less than their original or adjusted purchase price.
Liquidation
if no business combination.
Our amended and restated certificate of incorporation provides that we will continue in
existence only until October 17, 2009. This provision may not be amended except in connection with
the consummation of a business combination. If we have not completed a business combination by such
date, our corporate existence will cease except for the purposes of winding up our affairs and
liquidating, pursuant to Section 278 of the Delaware General Corporation Law. This has the same
effect as if our board of directors and stockholders had formally voted to approve our dissolution
pursuant to Section 275 of the Delaware General Corporation Law. Accordingly, limiting our
corporate existence to a specified date as permitted by Section 102(b)(5) of the Delaware General
Corporation Law removes the necessity to comply with the formal procedures set forth in Section 275
(which would have required our board of directors and stockholders to formally vote to approve our
dissolution and liquidation and to have filed a certificate of dissolution with the Delaware
Secretary of State). We view this provision terminating our corporate life by October 17, 2009 as
an obligation to our stockholders and will not take any action to amend or waive this provision to
allow us to survive for a longer period of time except in connection with the consummation of a
business combination.
If we are unable to complete a business combination by October 17, 2009, we will distribute to
all of our public stockholders, in proportion to their respective equity interests, an aggregate
sum equal to the amount in the trust account, inclusive of any interest, plus any remaining net
assets (subject to our obligations under Delaware law to provide for claims of creditors as
described below). We anticipate notifying the trustee of the trust account to begin liquidating
such assets promptly after such date and anticipate it will take no more than 10 business days to
effectuate such distribution. Our initial stockholders have waived their rights to participate in
any liquidation distribution with respect to their initial shares. There will be no distribution
from the trust account with respect to our warrants, which will expire worthless. We will pay the
costs of liquidation from our remaining assets outside of the trust account. If such funds are
insufficient, our initial stockholders have agreed to advance us the funds necessary to complete
such liquidation (currently anticipated to be no more than approximately $15,000) and have agreed
not to seek repayment of such expenses.
If we were to expend all of the net proceeds of our initial public offering, other than the
proceeds deposited in the trust account, and without taking into account interest, if any, earned
on the trust account, the initial per-share liquidation price would be approximately $7.90. The
proceeds deposited in the trust account could, however, become subject to the claims of our
creditors (which could include vendors and service providers we have engaged to assist us in any
way in connection with our search for a target business and that are owed money by us, as well as
target businesses themselves) which could have higher priority than the claims of our public
stockholders. Our management stockholders have personally agreed, pursuant to agreements with us
and Pali Capital, Inc. that, if we liquidate prior to the consummation of a business combination,
they will be personally liable to pay debts and obligations to target businesses or vendors or
other entities that are owed money by us for services rendered or contracted for or products sold
to us in excess of the net proceeds of our initial public offering not held in the trust account,
but only if, and to the extent, the claims reduce the amounts in the trust account. Although we
have a fiduciary obligation to pursue our management stockholders to enforce their indemnification
obligations, and intend to pursue such actions as and when we deem appropriate, there can be no
assurance they will be able to satisfy those obligations, if required to do so. Furthermore, our
management stockholders will not have any personal liability as to any claimed amounts owed to a
third party (including target businesses) who executed a valid and enforceable waiver. Accordingly,
the actual per-share liquidation price could be less than approximately $7.90, plus interest, due
to claims of creditors. Additionally, in the case of a prospective target business that did not
execute a waiver, such liability will only be in an amount necessary to ensure that public
stockholders receive no less than $8.00 per share upon liquidation. Furthermore, if we are forced
to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not
dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law,
and may be included in our bankruptcy estate and subject to the claims of third parties with
priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust
account, we cannot assure our stockholders we will be able to return to our public
stockholders at least approximately $7.90 per share.
8
Our public stockholders will be entitled to receive funds from the trust account only in the
event of the expiration of our corporate existence and our liquidation or if they seek to convert
their respective shares into cash upon a business combination which the stockholder voted against
and which is completed by us. In no other circumstances will a stockholder have any right or
interest of any kind to or in the trust account.
Under the Delaware General Corporation Law, stockholders may be held liable for claims by
third parties against a corporation to the extent of distributions received by them in a
dissolution. If the corporation complies with certain procedures set forth in Section 280 of the
Delaware General Corporation Law intended to ensure that it makes reasonable provision for all
claims against it, including a 60-day notice period during which any third-party claims can be
brought against the corporation, a 90-day period during which the corporation may reject any claims
brought, and an additional 150-day waiting period before any liquidating distributions are made to
stockholders, any liability of stockholders with respect to a liquidating distribution is limited
to the lesser of such stockholders pro rata share of the claim or the amount distributed to the
stockholder, and any liability of the stockholder would be barred after the third anniversary of
the dissolution. However, as stated above, it is our intention to make liquidating distributions to
our stockholders as soon as reasonably possible after October 17, 2009 and, therefore, we do not
intend to comply with those procedures. As such, our stockholders could potentially be liable for
any claims to the extent of distributions received by them (but no more) and any liability of our
stockholders may extend well beyond the third anniversary of such date. Because we will not be
complying with Section 280, Section 281(b) of the Delaware General Corporation Law requires us to
adopt a plan that will provide for our payment, based on facts known to us at such time, of (i) all
existing claims, (ii) all pending claims and (iii) all claims that may be potentially brought
against us within the subsequent 10 years. Accordingly, we would be required to provide for any
claims of creditors known to us at that time or those that we believe could be potentially brought
against us within the subsequent 10 years prior to our distributing the funds in the trust account
to our public stockholders. However, because we are a blank check company, rather than an operating
company, and our operations will be limited to searching for prospective target businesses to
acquire, the only likely claims to arise would be from our vendors and service providers (such as
accountants, lawyers, investment bankers, etc.) and potential target businesses. As described
above, pursuant to the obligation contained in our underwriting agreement, we will seek to have all
vendors, service providers, except for the independent accountants, and prospective target businesses execute agreements with us waiving any
right, title, interest or claim of any kind they may have in or to any monies held in the trust
account. As a result, the claims that could be made against us will be limited, thereby lessening
the likelihood that any claim would result in any liability extending to the trust. We therefore
believe that any necessary provision for creditors will be reduced and should not have a
significant impact on our ability to distribute the funds in the trust account to our public
stockholders. Nevertheless, we cannot assure our stockholders of this fact as there is no guarantee
that vendors, service providers and prospective target businesses will execute such agreements. Nor
is there any guarantee that, even if they execute such agreements with us, they will not seek
recourse against the trust account. A court could also conclude that such agreements are not
legally enforceable. As a result, if we liquidate, the per-share distribution from the trust
account could be less than approximately $7.90 due to claims or potential claims of creditors.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against
us which is not dismissed, any distributions received by stockholders could be viewed under
applicable debtor/creditor or bankruptcy laws as either a preferential transfer or a fraudulent
conveyance. As a result, a bankruptcy court could seek to recover all amounts received by our
stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account
to our public stockholders promptly after October 17, 2009, this may be viewed or interpreted as
giving preference to our public stockholders over any potential creditors with respect to access to
or distributions from our assets. Furthermore, our board may be viewed as having breached their
fiduciary duties to our creditors or may have acted in bad faith, and thereby exposing itself and
our company to claims of punitive damages, by paying public stockholders from the trust account
prior to addressing the claims of creditors. We cannot assure our stockholders that claims will not
be brought against us for these reasons.
9
Competition
In identifying, evaluating and selecting a target business, we may encounter intense
competition from other entities having a business objective similar to ours. There are
approximately 59 blank check companies that have completed initial public offerings in the United
States that have not announced or completed a business combination with
more than $12.4 billion in trust that are seeking to carry out a business plan similar to our
business plan. Furthermore, there are a number of additional offerings for blank check companies
that are still in the registration process but have not completed initial public offerings and
there are likely to be more blank check companies filing registration statements for initial public
offerings after the date of this Form 10-K prior to our completion of a business combination.
Additionally, we may be subject to competition from entities other than blank check companies
having a business objective similar to ours, including venture capital firms, leverage buyout firms
and operating businesses looking to expand their operations through the acquisition of a target
business. Many of these entities are well established and have extensive experience identifying and
effecting business combinations directly or through affiliates. Many of these competitors possess
greater technical, human and other resources than us and our financial resources will be relatively
limited when contrasted with those of many of these competitors. While we believe there may be
numerous potential target businesses that we could acquire with the net proceeds of our initial
public offering, our ability to compete in acquiring certain sizable target businesses will be
limited by our available financial resources. This inherent competitive limitation gives others an
advantage in pursuing the acquisition of a target business. Further, the following may not be
viewed favorably by certain target businesses:
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our obligation to seek stockholder approval of a business combination may delay the
completion of a transaction; |
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our obligation to convert into cash shares of common stock held by our public
stockholders to such holders that both vote against the business combination and exercise
their conversion rights may reduce the resources available to us for a business
combination; and |
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our outstanding warrants, and the potential future dilution they represent. |
Any of these factors may place us at a competitive disadvantage in successfully negotiating a
business combination. Our management believes, however, that our status as a public entity and
potential access to the United States public equity markets may give us a competitive advantage
over privately-held entities having a similar business objective as ours in acquiring a target
business with significant growth potential on favorable terms.
If we succeed in effecting a business combination, there will be, in all likelihood, intense
competition from competitors of the target business. We cannot assure our stockholders that,
subsequent to a business combination, we will have the resources or ability to compete effectively.
Employees
We have two executive officers. These individuals are not obligated to devote any specific
number of hours to our matters and intend to devote only as much time as they deem necessary to our
affairs. Once management locates a suitable target business to acquire, they will spend more time
investigating such target business and negotiating and processing the business combination (and
consequently devote more time to our affairs) than they would prior to locating a suitable target
business. We presently expect each of our executive officers to devote time not in excess of
40 hours per week to our business. We do not intend to have any full time employees prior to the
consummation of a business combination.
ITEM 1A. RISK FACTORS
An investment in our securities involves a high degree of risk. The public should consider
carefully the material risks described below, which we believe represent all the material risks
related to our business, together with the other information contained in this Form 10-K, before
making a decision to invest in our units.
We may not have sufficient funds to continue operations. We may not continue as a going concern.
As of December 31, 2008, we have received the full amount of $1.5 million of interest earned
on the funds in the trust account which we were entitled for the purpose of paying operation
expenses (excluding $445,924 of interest earned and used to pay taxes) to and completing our
initial business combination, substantially all of which has been spent. Since inception to
December 31, 2008 the Company has incurred $1,829,561 of operating expenses (excluding taxes) of
which $398,002 was payable as of December 31, 2008. The Company had cash available at December 31,
2008 of $159,689 for operating expenses. Therefore, at December 31, 2008, the Company has incurred
liabilities which
exceed cash available. The Company expects to incur additional costs in pursuit of its acquisition
plans and we may not have sufficient funds available with which to structure, negotiate or close an
initial business combination. We are seeking to obtain deferrals of payables from our vendors,
including professional advisors, except for the independent accountants. We may also need to borrow funds from our initial stockholders.
Our vendors and professional advisors are under no obligation to defer payment and our initial
stockholders are under no obligation to advance funds to us. Accordingly, the Company may not
continue as a going concern. The accompanying financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
10
Risks associated with our business
We are a development stage company with no operating history and, accordingly, stockholders will
not have any basis on which to evaluate our ability to achieve our business objective.
We are a recently incorporated development stage company with no operating results to date.
Since we do not have an operating history, stockholders will have no basis upon which to evaluate
our ability to achieve our business objective, which is to acquire an operating business. We will
not generate any revenues until, at the earliest, after the consummation of a business combination.
If we are forced to liquidate before a business combination and distribute the trust account, our
public stockholders may receive less than $8.00 per share and our warrants will expire worthless.
If we are unable to complete a business combination within the prescribed time frames and are
forced to liquidate our assets, the per-share liquidation distribution may be less than $8.00
because of the expenses of our initial public offering, our general and administrative expenses and
the anticipated costs of seeking a business combination. Furthermore, there will be no distribution
with respect to our outstanding warrants which will expire worthless if we liquidate before the
completion of a business combination.
If we are unable to consummate a business combination, our public stockholders will be forced to
wait the full 24 months before receiving liquidation distributions.
We have 24 months from the effective date, or October 17, 2007, in which to complete a
business combination. We have no obligation to return funds to investors prior to such date unless
we consummate a business combination prior thereto and only then in cases where investors have
sought conversion of their shares. Only after the expiration of this full time period will public
stockholders be entitled to liquidation distributions if we are unable to complete a business
combination. Accordingly, investors funds may be unavailable to them until such date.
Stockholders will not be entitled to protections normally afforded to investors of blank check
companies.
Since the net proceeds of our initial public offering are intended to be used to complete a
business combination with a target business that has not been identified, we may be deemed to be a
blank check company under the United States securities laws. However, since our securities are
listed on the American Stock Exchange, a national securities exchange and we have net tangible
assets in excess of $5,000,000, we are exempt from rules promulgated by the SEC to protect
investors of blank check companies such as Rule 419. Accordingly, investors are not afforded the
benefits or protections of those rules. Because we are not subject to Rule 419, we have a longer
period of time to complete a business combination in certain circumstances than we would if we were
subject to such rule.
We allow up to 29.99% of our public stockholders to exercise their conversion rights. This higher
threshold will make it easier for us to consummate a business combination with which stockholders
may not agree, and stockholders may not receive the full amount of their investment upon exercise
of their conversion rights.
When we seek stockholder approval of a business combination, we will offer each public
stockholder (other than our initial stockholders) the right to have his, her or its shares of
common stock converted to cash if the stockholder votes against the business combination and the
business combination is approved and consummated. We will consummate the initial business
combination only if the following two conditions are met: (i) a majority of the shares of common
stock voted by the public stockholders are voted in favor of the business combination and
(ii) public stockholders owning 30% or more of the shares sold in our initial public offering do
not vote against the business combination and exercise their conversion rights.
11
Exercise of conversion rights must be effected pursuant to a specific process which may take time
to complete and may result in the expenditure of funds by stockholders seeking conversion.
A stockholder requesting conversion of his, her or its common stock into cash may do so at any
time after the mailing to our stockholders of the proxy statement and prior to the vote taken with
respect to a proposed business combination. A stockholder would have from the time we send out our
proxy statement through the vote on the business combination to tender (either electronically or
through the delivery of physical stock certificates) his, her or its shares of common stock if he,
she or it wishes to seek to exercise his, her or its conversion rights, a period which is expected
to be not less than 10 nor more than 60 days. There is a nominal cost associated with the
above-referenced tendering process and the act of certificating the shares or delivering them
through the DWAC system. The transfer agent will typically charge the tendering broker $35 and it
would be the brokers decision whether or not to pass this cost on to the converting holder. There
may be additional mailing and other nominal charges depending on the particular process used to
tender common stock. Although we believe the time period, costs and other potential burdens
associated with the tendering process are not onerous for an average investor, this process may
result in additional burdens for our stockholders, including mis-delivery or any other defect in
the tendering process.
Additionally, if a vote on our initial business combination is held and the business
combination is not approved, we may continue to try to consummate a business combination with a
different target until twenty four months from the date of our initial public offering, or October
17, 2009. If the initial business combination is not approved or completed for any reason, public
stockholders voting against our initial business combination who exercised their conversion rights
would not be entitled to convert their shares of common stock into a pro rata share of the
aggregate amount then on deposit in the trust account. In such case, if we have required public
stockholders to tender their certificates prior to the meeting, we will promptly return such
certificates to the tendering public stockholder. In such case, they would then have to comply with
the tendering process again for any vote against a subsequent business combination.
Because there are numerous companies with a business plan similar to ours seeking to effectuate a
business combination, it may be more difficult for us to do so.
Since 2003, based upon publicly available information, approximately 161 similarly structured
blank check companies have completed initial public offerings in the United States. Of these
companies, only 64 companies have consummated a business combination, while 17 other companies have
announced they have entered into a definitive agreement for a business combination, but have not
consummated such business combination, and 38 companies have failed to complete business
combinations and have either dissolved or announced their intention to dissolve and return trust
proceeds to their stockholders. Accordingly, there are approximately 59 blank check companies with
more than $12.4 billion in trust that are seeking to carry out a business plan similar to our
business plan. Of these, there are 8 blank check companies which collectively have more than
$1.3 billion in trust that are focused on the entertainment, media, digital and communications
industries. Furthermore, there are a number of additional offerings for blank check companies that
are still in the registration process but have not completed initial public offerings and there are
likely to be more blank check companies filing registration statements for initial public offerings
after the date of this Form 10-K and prior to our completion of a business combination. While some
of those companies must complete a business combination in specific industries, a number of them
may consummate a business combination in any industry they choose. Therefore, we may be subject to
competition from these and other companies seeking to consummate a business plan similar to ours.
Because of this competition, we cannot assure our stockholders that we will be able to effectuate a
business combination within the required time periods.
If third parties bring claims against us, the proceeds held in trust could be reduced and the
per-share liquidation price received by stockholders will be less than approximately $7.90 per
share.
Our placing of funds in trust may not protect those funds from third party claims against us.
Although we will seek to have all vendors and service providers we engage and prospective target
businesses we negotiate with, execute agreements with us waiving any right, title, interest or
claim of any kind in or to any monies held in the trust account for the benefit of our public
stockholders, there is no guarantee that they will execute such agreements. Furthermore, there is
no guarantee that, even if such entities execute such agreements with us, they will not seek
recourse against the trust account. Nor is there any guarantee that a court would uphold the
validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims
which could take priority over those of our public stockholders. If we liquidate before the
completion of a business combination and distribute the proceeds held in trust to our public
stockholders, our
management stockholders have agreed that they will be personally liable to ensure that the
proceeds in the trust account are not reduced by the claims of target businesses or vendors or
other entities that are owed money by us for services rendered or contracted for or products sold
to us. Based on representations made to us by our management stockholders, we currently believe
that they are capable of funding a shortfall in our trust account to satisfy their foreseeable
indemnification obligations. However, we have not asked them to reserve for such an eventuality.
Although we have a fiduciary obligation to pursue our management stockholders to enforce their
indemnification obligations, and intend to pursue such actions as and when we deem appropriate,
there can be no assurance they will be able to satisfy those obligations, if required to do so or
that the proceeds in the trust account will not be reduced by such claims. Furthermore, our
management stockholders will not have any personal liability as to any claimed amounts owed to a
third party who executed a valid and enforceable waiver (including a prospective target business).
Additionally, in the case of a prospective target business that did not execute a waiver, such
liability will only be in an amount necessary to ensure that public stockholders receive no less
than $7.90 per share upon liquidation.
12
Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is
filed against us which is not dismissed, the proceeds held in the trust account could be subject to
applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims
of third parties with priority over the claims of our stockholders. To the extent any bankruptcy
claims deplete the trust account, we cannot assure our stockholders we will be able to return to
our public stockholders at least $7.90 per share.
Our stockholders may be held liable for claims by third parties against us to the extent of
distributions received by them.
Our amended and restated certificate of incorporation provides that we will continue in
existence only until 24 months from the date of our initial public offering. If we have not
completed a business combination by such date and amended this provision in connection thereto,
pursuant to the Delaware General Corporation Law, our corporate existence will cease except for the
purposes of winding up our affairs and liquidating. Under Sections 280 through 282 of the Delaware
General Corporation Law, our stockholders may be held liable for claims by third parties against a
corporation to the extent of distributions received by them in a dissolution. If the corporation
complies with certain procedures set forth in Section 280 of the Delaware General Corporation Law
intended to ensure that it makes reasonable provision for all claims against it, including a 60-day
notice period during which any third-party claims can be brought against the corporation, a 90-day
period during which the corporation may reject any claims brought, and an additional 150-day
waiting period before any liquidating distributions are made to stockholders, any liability of
stockholders with respect to a liquidating distribution is limited to the lesser of such
stockholders pro rata share of the claim or the amount distributed to the stockholder, and any
liability of the stockholder would be barred after the third anniversary of the dissolution.
However, it is our intention to make liquidating distributions to our stockholders as soon as
reasonably possible after the expiration of the twenty four month period and, therefore, we do not
intend to comply with those procedures. Because we will not be complying with those procedures, we
are required, pursuant to Section 281 of the Delaware General Corporation Law, to adopt a plan that
will provide for our payment, based on facts known to us at such time, of (i) all existing claims,
(ii) all pending claims and (iii) all claims that may be potentially brought against us within the
subsequent 10 years. Accordingly, we would be required to provide for any creditors known to us at
that time or those that we believe could be potentially brought against us within the subsequent
10 years prior to distributing the funds held in the trust to stockholders. We cannot assure our
public stockholders that we will properly assess all claims that may be potentially brought against
us. As such, our stockholders could potentially be liable for any claims to the extent of
distributions received by them (but no more) and any liability of our stockholders may extend well
beyond the third anniversary of the date of distribution. Accordingly, we cannot assure our public
stockholders that third parties will not seek to recover from our stockholders amounts owed to them
by us.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against
us which is not dismissed, any distributions received by stockholders could be viewed under
applicable debtor/creditor or bankruptcy laws as either a preferential transfer or a fraudulent
conveyance. As a result, a bankruptcy court could seek to recover all amounts received by our
stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account
to our public stockholders promptly after October 17, 2009, this may be viewed or interpreted as
giving preference to our public stockholders over any potential creditors with respect to access to
or distributions from our assets. Furthermore, our board may be viewed as having breached their
fiduciary duties to our creditors or may have acted in bad faith, thereby exposing itself and our
company to claims of punitive damages, by paying public stockholders
from the trust account prior to addressing the claims of creditors. We cannot assure our
public stockholders that claims will not be brought against us for these reasons.
13
An effective registration statement may not be in place when an investor desires to exercise
warrants, thus precluding such investor from being able to exercise his, her or its warrants and
causing such warrants to be practically worthless.
No warrant held by public stockholders will be exercisable and we will not be obligated to
issue shares of common stock unless at the time such holder seeks to exercise such warrant, a
registration statement relating to the common stock issuable upon exercise of the warrant is
effective and current and the common stock has been registered or qualified or deemed to be exempt
under the securities laws of the state of residence of the holder of the warrants. Under the terms
of the warrant agreement, we have agreed to use our best efforts to meet these conditions and to
maintain a current prospectus relating to the common stock issuable upon exercise of the warrants
until the expiration of the warrants. However, we cannot assure our stockholders that we will be
able to do so, and if we do not maintain a current prospectus related to the common stock issuable
upon exercise of the warrants, holders will be unable to exercise their warrants and we will not be
required to settle any such warrant exercise. In no event will we be required to net cash settle
any warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of
the warrants is not current, the warrants held by public stockholders may have no value, the market
for such warrants may be limited and such warrants may expire worthless. As a result, a purchaser
of a unit may pay the full unit purchase price solely for the shares underlying the unit.
Notwithstanding the foregoing, the insider warrants may be exercisable for unregistered shares of
common stock even if no registration relating to the common stock issuable upon exercise of the
warrants is effective and current.
An investor will only be able to exercise a public offering warrant if the issuance of common stock
upon such exercise has been registered or qualified or is deemed exempt under the securities laws
of the state of residence of the holder of the warrants.
No public offering warrants will be exercisable and we will not be obligated to issue shares
of common stock unless the common stock issuable upon such exercise has been registered or
qualified or deemed to be exempt under the securities laws of the state of residence of the holder
of the warrants. Because the exemptions from qualification in certain states for resales of
warrants and for issuances of common stock by the issuer upon exercise of a warrant may be
different, a warrant may be held by a holder in a state where an exemption is not available for
issuance of common stock upon an exercise and the holder will be precluded from exercise of the
warrant. At the time that the warrants become exercisable (following our completion of a business
combination), we expect to either continue to be listed on the American Stock Exchange, which would
provide an exemption from registration in every state, or we would register the warrants in every
state (or seek another exemption from registration in such states). Accordingly, we believe holders
in every state will be able to exercise their warrants as long as our prospectus relating to the
common stock issuable upon exercise of the warrants is current. However, we cannot assure our
stockholders of this fact. As a result, the warrants may be deprived of any value, the market for
the warrants may be limited and the holders of warrants may not be able to exercise their warrants
if the common stock issuable upon such exercise is not qualified or exempt from qualification in
the jurisdictions in which the holders of the warrants reside.
We are unable to currently ascertain the particular merits or risks of the business in which we may
ultimately operate.
Although we intend to focus our efforts on the entertainment, media, digital and
communications industries, there is no current basis for our stockholders to evaluate the possible
merits or risks of the particular target business which we may ultimately acquire. To the extent we
complete a business combination with a financially unstable company or an entity in its development
stage, we may be affected by numerous risks inherent in the business operations of those entities.
Although our management will endeavor to evaluate the risks inherent in our industry or a
particular target business, we cannot assure our stockholders that we will properly ascertain or
assess all of the significant risk factors. We also cannot assure our stockholders that an
investment in our units will not ultimately prove to be less favorable to investors in our initial
public offering than a direct investment, if an opportunity were available, in a target business.
14
We may not obtain an opinion from an unaffiliated third party as to the fair market value of the
target acquisition or that the price we are paying for the business is fair to our stockholders.
We are not required to obtain an opinion from an unaffiliated third party that either the
target acquisition we select has a fair market value in excess of 80% of our net assets held in the
trust account (net of taxes and amounts disbursed for working capital purposes and excluding the
amount held in the trust account representing a portion of the underwriters discount) or that the
price we are paying is fair to our stockholders unless (i) our board is not able to independently
determine that a target acquisition has a sufficient market value or (ii) there is a conflict of
interest with respect to the transaction. If no opinion is obtained, our stockholders will be
relying on the judgment or our board of directors.
We may issue shares of our capital stock or debt securities to complete a business combination,
which would reduce the equity interest of our stockholders and likely cause a change in control of
our ownership.
Our certificate of incorporation authorizes the issuance of up to 40,000,000 shares of common
stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per
share. Immediately after our initial public offering and the purchase of the insider warrants there
were 13,740,000 authorized but unissued shares of our common stock available for issuance (after
appropriate reservation for the issuance of the shares upon full exercise of our outstanding
warrants and the purchase option granted to the underwriters) and all of the 1,000,000 shares of
preferred stock available for issuance. Although we have no commitment as of the date of this Form
10-K, we may issue a substantial number of additional shares of our common or preferred stock, or a
combination of common and preferred stock, to complete a business combination. The issuance of
additional shares of our common stock or any number of shares of our preferred stock:
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may significantly reduce the equity interest of investors in our initial public
offering; |
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may subordinate the rights of holders of common stock if we issue preferred stock with
rights senior to those afforded to our common stock; |
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may cause a change in control if a substantial number of our shares of common stock are
issued, which may affect, among other things, our ability to use our net operating loss
carry forwards, if any, and could result in the resignation or removal of our present
officers and directors; and |
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could enhance or adversely affect prevailing market prices for our common stock. |
Similarly, if we issue debt securities, it could result in:
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default and foreclosure on our assets if our operating revenues after a business
combination are insufficient to repay our debt obligations; |
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acceleration of our obligations to repay the indebtedness even if we make all principal
and interest payments when due if we breach certain covenants that require the maintenance
of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
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our immediate payment of all principal and accrued interest, if any, if the debt
security is payable on demand; and |
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our inability to obtain necessary additional financing if the debt security contains
covenants restricting our ability to obtain such financing while the debt security is
outstanding. |
Our ability to successfully effect a business combination and to be successful thereafter will be
totally dependent upon the efforts of our key personnel, some of whom may join us following a
business combination.
Our ability to successfully effect a business combination is dependent upon the efforts of our
key personnel. The role of our key personnel in the target business, however, cannot presently be
ascertained. Although some of our key personnel may remain with the target business in senior
management or advisory positions following a business combination, it is likely that some or all of
the management of the target business will remain in place. While we intend to closely scrutinize
any individuals we engage after a business combination, we cannot assure our stockholders that our
assessment of these individuals will prove to be correct. These individuals may be unfamiliar
with the requirements of operating a public company which could cause us to have to expend time and
resources helping them become familiar with such requirements. This could be expensive and
time-consuming and could lead to various regulatory issues which may adversely affect our
operations.
15
Our key personnel may negotiate employment or consulting agreements with a target business in
connection with a particular business combination. These agreements may provide for them to receive
compensation following a business combination and as a result, may cause them to have conflicts of
interest in determining whether a particular business combination is the most advantageous.
Our key personnel will be able to remain with the company after the consummation of a business
combination only if they are able to negotiate employment or consulting agreements in connection
with the business combination. Such negotiations would take place simultaneously with the
negotiation of the business combination and could provide for such individuals to receive
compensation in the form of cash payments or our securities for services they would render to the
company after the consummation of the business combination. The personal and financial interests of
such individuals may influence their motivation in identifying and selecting a target business.
However, we believe the ability of such individuals to remain with the company after the
consummation of a business combination will not be the determining factor in our decision as to
whether or not we will proceed with any potential business combination.
Our officers and directors will allocate their time to other businesses thereby causing conflicts
of interest in their determination as to how much time to devote to our affairs. This conflict of
interest could have a negative impact on our ability to consummate a business combination.
Our officers and directors are not required to commit their full time to our affairs, which
could create a conflict of interest when allocating their time between our operations and their
other commitments. We do not intend to have any full time employees prior to the consummation of a
business combination. All of our executive officers are engaged in several other business endeavors
and are not obligated to devote any specific number of hours to our affairs. If our officers and
directors other business affairs require them to devote more substantial amounts of time to such
affairs, it could limit their ability to devote time to our affairs and could have a negative
impact on our ability to consummate a business combination. We cannot assure our stockholders that
these conflicts will be resolved in our favor. As a result, a potential target business may be
presented to another entity prior to its presentation to us and we may miss out on a potential
transaction.
We may engage in a business combination with one or more target businesses that have relationships
with our initial stockholders, officers or, directors, which may raise potential conflicts of
interest.
In light of our initial stockholders, officers and directors involvement with other
entertainment, media, digital and communications companies and our intent to complete a business
combination with one or more operating businesses in the same industry, we may decide to acquire
one or more businesses affiliated with our initial stockholders, officers or, directors. Our
officers, directors and stockholders may have conflicting fiduciary duties in determining to which
entity a particular business opportunity should be presented. Also, the completion of a business
combination between us and an entity owned by a business in which one of our officers, directors or
stockholders has an interest could enhance their prospects for future business from such entity or
lead to consulting or other arrangements with such entity. Despite our agreement to obtain an
opinion from an independent investment banking firm regarding the fairness to our public
stockholders from a financial point of view of a business combination with a business affiliated
with our initial stockholders, officers or, directors, potential conflicts of interest still may
exist. As a result, the terms of the business combination may not be as advantageous to our public
stockholders as they would be absent any conflicts of interest. For example, the purchase price of
such a business combination may be higher than the purchase price for similar business
combinations.
Our officers, directors and stockholders, and their affiliates may in the future become affiliated
with entities engaged in business activities similar to those intended to be conducted by us and
accordingly, may have conflicts of interest in determining to which entity a particular business
opportunity should be presented.
Our officers, directors and stockholders may be, or may in the future become, affiliated with
entities, including other blank check companies, engaged in business activities similar to those
intended to be conducted by us.
Additionally, our officers, directors and stockholders may become aware of business
opportunities which may be appropriate for presentation to us and the other entities to which they
owe fiduciary duties. Accordingly, they may have conflicts of interest in determining to which
entity a particular business opportunity should be presented. We cannot assure our stockholders
that these conflicts will be resolved in our favor. As a result, a potential target business may be
presented to another entity prior to its presentation to us and we may miss out on a potential
transaction.
16
All of our officers and directors own shares of our common stock issued prior to our initial public
offering and some of them purchased warrants following the initial public offering. These shares
and warrants will not participate in liquidation distributions and, therefore, our officers and
directors may have a conflict of interest in determining whether a particular target business is
appropriate for a business combination.
All of our officers and directors own shares of our common stock that were issued prior to our
initial public offering. Additionally, certain of our officers and directors purchased insider
warrants upon consummation of our initial public offering. Such individuals have waived their right
to receive distributions with respect to their initial shares upon our liquidation if we are unable
to consummate a business combination. Accordingly, the shares acquired prior to our initial public
offering, as well as the insider warrants, and any warrants purchased by our officers or directors
in our initial public offering or in the aftermarket will be worthless if we do not consummate a
business combination. The personal and financial interests of our directors and officers may
influence their motivation in timely identifying and selecting a target business and completing a
business combination. Consequently, our directors and officers discretion in identifying and
selecting a suitable target business may result in a conflict of interest when determining whether
the terms, conditions and timing of a particular business combination are appropriate and in our
stockholders best interest.
The NYSE Amex may delist our securities from quotation on its exchange which could
limit investors ability to make transactions in our securities and subject us to additional
trading restrictions.
Our securities are listed on the NYSE Amex, a national securities exchange. We
cannot assure our stockholders that our securities will continue to be listed on the NYSE Amex in the future prior to a business combination. Additionally, in connection with our
business combination, it is likely that the NYSE Amex will require us to file a new
initial listing application and meet its initial listing requirements as opposed to its more
lenient continued listing requirements. We cannot assure our stockholders that we will be able to
meet those initial listing requirements at that time.
If the NYSE Amex delists our securities from trading on its exchange, we could
face significant material adverse consequences, including:
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a limited availability of market quotations for our securities; |
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a determination that our common stock is a penny stock which will require brokers
trading in our common stock to adhere to more stringent rules, possibly resulting in a
reduced level of trading activity in the secondary trading market for our common stock; |
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a limited amount of news and analyst coverage for our company; and |
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a decreased ability to issue additional securities or obtain additional financing in the
future. |
We may only be able to complete one business combination with the proceeds of our initial public
offering, which will cause us to be solely dependent on a single business which may have a limited
number of products or services.
Our business combination must be with a business with a fair market value of at least 80% of
our net assets at the time of such acquisition, although this may entail the simultaneous
acquisitions of several operating businesses at the same time. By consummating a business
combination with only a single entity, our lack of diversification may subject us to numerous
economic, competitive and regulatory developments. Further, we would not be able to diversify our
operations or benefit from the possible spreading of risks or offsetting of losses, unlike other
entities which may have the resources to complete several business combinations in different
industries or different areas of a single industry. Accordingly, the prospects for our success may
be:
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solely dependent upon the performance of a single business, or |
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dependent upon the development or market acceptance of a single or limited number of
products, processes or services. |
17
This lack of diversification may subject us to numerous economic, competitive and regulatory
developments, any or all of which may have a substantial adverse impact upon the particular
industry in which we may operate subsequent to a business combination.
Alternatively, if we determine to simultaneously acquire several businesses and such
businesses are owned by different sellers, we will need for each of such sellers to agree that our
purchase of its business is contingent on the simultaneous closings of the other business
combinations, which may make it more difficult for us, and delay our ability, to complete the
business combination. With multiple business combinations, we could also face additional risks,
including additional burdens and costs with respect to possible multiple negotiations and due
diligence investigations (if there are multiple sellers) and the additional risks associated with
the subsequent assimilation of the operations and services or products of the acquired companies in
a single operating business. If we are unable to adequately address these risks, it could
negatively impact our profitability and results of operations.
The ability of our stockholders to exercise their conversion rights may not allow us to effectuate
the most desirable business combination or optimize our capital structure.
When we seek stockholder approval of any business combination, we will offer each public
stockholder (but not our initial stockholders) the right to have his, her or its shares of common
stock converted to cash if the stockholder votes against the business combination and the business
combination is approved and completed. Such holder must both vote against such business combination
and then exercise his, her or its conversion rights to receive a pro rata portion of the trust
account. Accordingly, if our business combination requires us to use substantially all of our cash
to pay the purchase price, because we will not know how many stockholders may exercise such
conversion rights, we may either need to reserve part of the trust account for possible payment
upon such conversion, or we may need to arrange third party financing to help fund our business
combination in case a larger percentage of stockholders exercise their conversion rights than we
expect. We may not be able to consummate a business combination that requires us to use all of the
funds held in the trust account as part of the purchase price, or we may end up having a leverage
ratio that is not optimal for our business combination. This may limit our ability to effectuate
the most attractive business combination available to us.
Because of our limited resources and structure, we may not be able to consummate an attractive
business combination.
We expect to encounter intense competition from entities other than blank check companies
having a business objective similar to ours, including venture capital funds, leveraged buyout
funds and operating businesses competing for acquisitions. Many of these entities are well
established and have extensive experience in identifying and effecting business combinations
directly or through affiliates. Many of these competitors possess greater technical, human and
other resources than we do and our financial resources will be relatively limited when contrasted
with those of many of these competitors. While we believe that there are numerous potential target
businesses that we could acquire with the net proceeds of our initial public offering, our ability
to compete in acquiring certain sizable target businesses will be limited by our available
financial resources. This inherent competitive limitation gives others an advantage in pursuing the
acquisition of certain target businesses. Furthermore, the obligation we have to seek stockholder
approval of a business combination may delay the consummation of a transaction. Additionally, our
outstanding warrants, and the future dilution they potentially represent, may not be viewed
favorably by certain target businesses. Any of these obligations may place us at a competitive
disadvantage in successfully negotiating a business combination. Because only 81 of the 161 blank
check companies that have gone public in the United States since 2003 have either consummated a
business combination or entered into a definitive agreement for a business combination, it may
indicate that there are fewer attractive target businesses available to such entities like our
company or that many privately held target businesses are not inclined to enter into these types of
transactions with publicly held blank check companies like ours. If we are unable to consummate a
business combination with a target business within the prescribed time periods, we will be forced
to liquidate.
18
We may be unable to obtain additional financing, if required, to complete a business combination or
to fund the operations and growth of the target business, which could compel us to restructure or
abandon a particular business combination.
Although we believe that the net proceeds of our initial public offering will be sufficient to
allow us to consummate a business combination, we cannot ascertain the capital requirements for any
particular transaction. If the net proceeds of our initial public offering prove to be
insufficient, either because of the size of the business combination, the depletion of the
available net proceeds in search of a target business, or the obligation to convert into cash a
significant number of shares from dissenting stockholders, we will be required to seek additional
financing. We cannot assure our stockholders that such financing will be available on acceptable
terms, if at all. To the extent that additional financing proves to be unavailable when needed to
consummate a particular business combination, we would be compelled to either restructure the
transaction or abandon that particular business combination and seek an alternative target business
candidate. In addition, if we consummate a business combination, we may require additional
financing to fund the operations or growth of the target business. The failure to secure additional
financing could have a material adverse effect on the continued development or growth of the target
business. None of our officers, directors or stockholders is required to provide any financing to
us in connection with or after a business combination.
Our initial stockholders, including our officers and directors, control a substantial interest in
us and thus may influence certain actions requiring a stockholder vote.
Our initial stockholders (including all of our officers and directors) collectively own
approximately 18% of our issued and outstanding shares of common stock. However, if a significant
number of stockholders vote, or indicate an intention to vote, against a proposed business
combination, our officers, directors and stockholders and their affiliates could make such
purchases in the open market or in private transactions in order to influence the vote. Our board
of directors is divided into three classes, each of which will generally serve for a term of three
years with only one class of directors being elected in each year. It is unlikely that there will
be an annual meeting of our stockholders to elect new directors prior to the consummation of a
business combination, in which case all of the current directors will continue in office until at
least the consummation of the business combination. If there is an annual meeting, as a consequence
of our staggered board of directors, only a minority of the board of directors will be considered
for election and our initial stockholders, because of their ownership position, will have
considerable influence regarding the outcome. Accordingly, our initial stockholders will continue
to exert control at least until the consummation of a business combination.
Our outstanding warrants may have an adverse effect on the market price of our common stock and
make it more difficult to effect a business combination.
We issued warrants to purchase 9,000,000 shares of common stock as part of the units offered
in our initial public offering and 2,100,000 warrants to purchase shares of common stock to our
insiders. In addition, on the same date, we consummated the sale of an additional 1,255,000 units
pursuant to the exercise of the underwriters over-allotment option. We also issued an option to
purchase 700,000 units to Pali Capital, Inc., which, if exercised, will result in the issuance of
an additional 700,000 shares of common stock and 700,000 warrants. To the extent we issue shares of
common stock to effect a business combination, the potential for the issuance of a substantial
number of additional shares upon exercise of these warrants and option could make us a less
attractive acquisition vehicle in the eyes of a target business. Such securities, when exercised,
will increase the number of issued and outstanding shares of our common stock and reduce the value
of any shares issued to complete the business combination. Accordingly, our warrants may make it
more difficult to effectuate a business combination or increase the cost of acquiring the target
business. Additionally, the sale, or even the possibility of sale, of the shares underlying the
warrants could have an adverse effect on the market price for our securities or on our ability to
obtain future financing. If and to the extent these warrants are exercised, our stockholders may
experience dilution to their holdings.
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If our initial stockholders or the purchasers of the insider warrants exercise their registration
rights with respect to their initial shares or insider warrants and underlying securities, it may
have an adverse effect on the market price of our common stock and the existence of these rights
may make it more difficult to effect a business combination.
Our initial stockholders are entitled to make a demand that we register the resale of their
initial shares at any time commencing on the date on which their shares are released from escrow.
Additionally, the purchasers of the insider warrants are entitled to demand that we register the
resale of their insider warrants and underlying shares of common
stock at any time after we consummate a business combination. If such individuals exercise
their registration rights with respect to all of their securities, then there will be an additional
2,250,000 shares of common stock and 2,100,000 insider warrants (as well as 2,100,000 shares of
common stock underlying the warrants) eligible for trading in the public market. The presence of
these additional shares of common stock trading in the public market may have an adverse effect on
the market price of our common stock. In addition, the existence of these rights may make it more
difficult to effectuate a business combination or increase the cost of acquiring the target
business, as the stockholders of the target business may be discouraged from entering into a
business combination with us or may request a higher price for their securities because of the
potential effect the exercise of such rights may have on the trading market for our common stock.
If we are deemed to be an investment company, we may be required to institute burdensome compliance
requirements and our activities may be restricted, which may make it difficult for us to complete a
business combination.
A company that, among other things, is or holds itself out as being engaged primarily, or
proposes to engage primarily, in the business of investing, reinvesting, owning, trading or holding
certain types of securities would be deemed an investment company under the Investment Company Act
of 1940. Since we will invest the proceeds held in the trust account, it is possible that we could
be deemed an investment company. Notwithstanding the foregoing, we do not believe that our
anticipated principal activities will subject us to the Investment Company Act of 1940. To this
end, the proceeds held in trust may be invested by the trustee only in United States government
securities within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 having a
maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act of 1940. By restricting the investment of the proceeds
to these instruments, we intend to meet the requirements for the exemption provided in Rule 3a-1
promulgated under the Investment Company Act of 1940.
If we are nevertheless deemed to be an investment company under the Investment Company Act of
1940, we may be subject to certain restrictions that may make it more difficult for us to complete
a business combination, including:
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restrictions on the nature of our investments; and |
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restrictions on the issuance of securities. |
In addition, we may have imposed upon us certain burdensome requirements, including:
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registration as an investment company; |
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adoption of a specific form of corporate structure; and |
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reporting, record keeping, voting, proxy, compliance policies and procedures and
disclosure requirements and other rules and regulations. |
Compliance with these additional regulatory burdens would require additional expense for which we
have not allotted funds.
If we effect a business combination with a company located outside of the United States, we would
be subject to a variety of additional risks that may negatively impact our operations.
We may effect a business combination with a company located outside of the United States. If
we did, we would be subject to any special considerations or risks associated with companies
operating in the target business home jurisdiction, including any of the following:
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tariffs and trade barriers; |
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regulations related to customs and import/export matters; |
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longer payment cycles; |
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tax issues, such as tax law changes and variations in tax laws as compared to the United States; |
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currency fluctuations; |
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challenges in collecting accounts receivable; |
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cultural and language differences; and |
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employment regulations. |
We cannot assure our stockholders that we would be able to adequately address these additional
risks. If we were unable to do so, our operations might suffer.
If we effect a business combination with a company located outside of the United States, the laws
applicable to such company will likely govern all of our material agreements and we may not be able
to enforce our legal rights.
If we effect a business combination with a company located outside of the United States, the
laws of the country in which such company operates will govern almost all of the material
agreements relating to its operations. We cannot assure our stockholders that the target business
will be able to enforce any of its material agreements or that remedies will be available in this
new jurisdiction. The system of laws and the enforcement of existing laws in such jurisdiction may
not be as certain in implementation and interpretation as in the United States.
The inability to enforce or obtain a remedy under any of our future agreements could result in
a significant loss of business, business opportunities or capital. Additionally, if we acquire a
company located outside of the United States, it is likely that substantially all of our assets
would be located outside of the United States and some of our officers and directors might reside
outside of the United States. As a result, it may not be possible for investors in the United
States to enforce their legal rights, to effect service of process upon our directors or officers
or to enforce judgments of United States courts predicated upon civil liabilities and criminal
penalties against our directors and officers under Federal securities laws.
Foreign Currency fluctuations could adversely affect our business and financial results.
A target business with which we combine may do business and generate sales within other
countries. Foreign currency fluctuations may affect the costs that we incur in such international
operations. It is also possible that some or all of our operating expenses may be incurred in
non-U.S. dollar currencies. The appreciation of non-U.S. dollar currencies in those countries where
we have operations against the U.S. dollar would increase our costs and could harm our results of
operations and financial condition.
Risks Associated with the Entertainment, Media, Digital and Communications Industries
We will focus our search on target businesses in the entertainment, media, digital or
communications industries. We believe that the following risks will apply to us following the
completion of a business combination with a target business in the entertainment, media, digital or
communications industries.
The speculative nature of the entertainment, media, digital and communications industries may
negatively impact our results of operations.
Certain segments of the entertainment, media, digital and communications industries are highly
speculative and historically have involved a substantial degree of risk. For example, the success
of a particular video game, program or series or recreational attraction depends upon unpredictable
and changing factors, including the success of promotional efforts, the availability of alternative
forms of entertainment and leisure time activities, general economic conditions, public acceptance
and other tangible and intangible factors, many of which are beyond our control. If we complete a
business combination with a target business in such a segment, our operations may be adversely
affected.
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If we are unable to protect our patents, trademarks, copyrights and other intellectual property
rights following a business combination, competitors may be able to use our technology or
intellectual property rights, which could weaken our competitive position.
If we are successful in acquiring a target business and the target business is the owner of
patents, trademarks, copyrights and other intellectual property, our success will depend in part on
our ability to obtain and enforce intellectual property rights for those assets, both in the United
States and in other countries. In those circumstances, we may file applications for patents,
copyrights and trademarks as our management deems appropriate. We cannot assure our stockholders
that these applications, if filed, will be approved, or that we will have the financial and other
resources necessary to enforce our proprietary rights against infringement by others. Additionally,
we cannot assure our stockholders that any patent, trademark or copyright obtained by us will not
be challenged, invalidated or circumvented.
If we are alleged to have infringed on the intellectual property or other rights of third parties,
it could subject us to significant liability for damages and may invalidate our proprietary rights.
If, following a business combination, third parties allege that we have infringed on their
intellectual property rights, privacy rights or publicity rights or have defamed them, we could
become a party to litigation. These claims and any resulting lawsuits could subject us to
significant liability for damages and could invalidate our proprietary rights or restrict our
ability to publish and distribute the infringing or defaming content.
We may not be able to comply with government regulations that may be adopted with respect to the
entertainment, media, digital and communications industries.
Certain segments of the entertainment, media, digital and communications industries, including
broadcast networks, cable networks and radio stations, have historically been subject to
substantial regulation at the Federal, state and local levels. In the past, the regulatory
environment, particularly with respect to the television and radio industry, has been fairly rigid.
We cannot assure our stockholders that regulations currently in effect or adopted in the future
will not cause us to modify or cease any of the operations then being conducted by a target
business that we acquire.
Because we must furnish our stockholders with target business financial statements prepared in
accordance with or reconciled to U.S. generally accepted accounting principles or prepared in
accordance with International Financial Reporting Standards, we will not be able to complete an
initial business combination with some prospective target businesses unless their financial
statements are first reconciled to U.S. generally accepted accounting principles or prepared in
accordance with International Financial Reporting Standards.
The federal securities laws require that a business combination meeting certain financial
significance tests include historical and/or pro forma financial statement disclosure in periodic
reports and proxy materials submitted to stockholders. Our initial business combination must be
with a target business that has a fair market value of at least 80% of the balance in the trust
account (excluding deferred underwriting discounts and commissions) at the time of our initial
business combination. We will be required to provide historical and/or pro forma financial
information to our stockholders when seeking approval of a business combination with one or more
target businesses. These financial statements must be prepared in accordance with, or be reconciled
to, U.S. generally accepted accounting principles, or GAAP, or prepared in accordance with
International Financial Reporting Standards, or IFRS, as approved by the International Accounting
Standards Board, or IASB, and the historical financial statements must be audited in accordance
with the standards of the Public Company Accounting Oversight Board (U.S.), or PCAOB. If a proposed
target business, including one located outside of the U.S., does not have or is unable within a
reasonable period of time to provide financial statements that have been prepared in accordance
with, or reconciled to, U.S. GAAP or in accordance with IFRS as issued by the IASB, and audited in
accordance with the standards of the PCAOB, we will not be able to acquire that proposed target
business. These financial statement requirements may limit the pool of potential target businesses
with which we may combine.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 2. PROPERTIES
We currently maintain our executive offices at 307 East 87th Street, New York, New York,
10128. Our management stockholders have agreed to provide us with, or to arrange for third parties
to provide, certain administrative, technology and secretarial services, as well as the use of
certain limited office space, at this location or another location pursuant to letter agreements
between us and our management stockholders. Although we committed to
pay $7,500 per month for these services, our management stockholders have elected to receive
$6,400 per month. We believe, based on rents and fees for similar services in the New York City
metropolitan area, that the fee charged is at least as favorable as we could have obtained from an
unaffiliated person. We consider our current office space adequate for our current operations.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
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ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Our equity securities trade on the NYSE Amex. Each of our units consists of one share of
common stock and one warrant and trades on the NYSE Amex under the symbol TMI.U. On November 14,
2007, the common stock and warrants included in the units began to trade separately. Those units
not separated will continue to trade on the NYSE Amex under the symbol TMI.U, and each of the
common stock and warrants trade on the NYSE Amex under the symbols TMI and TMI.WS,
respectively.
Each warrant entitles the holder to purchase one share of our common stock at a price of
$5.50. Each warrant will become exercisable only on our completion of a business combination and
will expire on October 17, 2011, or earlier upon redemption.
The following table sets forth, for each quarter of the fiscal year ended December 31, 2008
and for a portion of the fourth quarter of the fiscal year ended December 31, 2007, the high and
low sales price of our units, common stock and warrants as reported on the NYSE Amex. Prior to
October 17, 2007, there was no established trading market for our securities.
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TMI/U |
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TMI |
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TMI/WS |
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Units |
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Common Stock |
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Warrants |
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High |
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Low |
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High |
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Low |
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High |
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Low |
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Year Ended December 31, 2008: |
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$ |
7.89 |
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$ |
6.81 |
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$ |
7.52 |
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$ |
6.87 |
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$ |
0.68 |
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$ |
0.01 |
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First Quarter |
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7.89 |
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7.47 |
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7.33 |
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7.10 |
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0.68 |
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0.38 |
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Second Quarter |
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7.80 |
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7.41 |
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7.40 |
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7.13 |
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0.50 |
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0.35 |
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Third Quarter |
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7.75 |
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7.00 |
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7.52 |
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7.20 |
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0.51 |
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0.20 |
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Fourth Quarter |
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7.45 |
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6.81 |
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7.31 |
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6.87 |
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0.29 |
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0.01 |
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Year Ended December 31, 2007: |
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Fourth Quarter1 |
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$ |
8.04 |
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$ |
7.81 |
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$ |
7.34 |
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$ |
7.20 |
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$ |
0.74 |
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$ |
0.65 |
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1 |
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Our units began trading on October 17, 2007. The common stock and warrants did not begin separate trading until November 14, 2007. |
Holders of Common Equity
On December 31, 2008 there was one (1) holder of record of our units, five (5) holders of
record of our warrants and seven (7) holders of record of our common stock. Such numbers do not
include beneficial owners holding shares, warrants or units through nominee names.
Dividends
We have not paid any cash dividends on our common stock to date and do not intend to pay cash
dividends prior to the completion of a business combination. The payment of cash dividends in the
future will be dependent upon our revenues and earnings, if any, capital requirements and general
financial condition subsequent to completion of a business combination. The payment of any
dividends subsequent to a business combination will be within the discretion of our then board of
directors. It is the present intention of our board of directors to retain all earnings, if any,
for use in our business operations and, accordingly, our board does not anticipate declaring any
dividends in the foreseeable future.
24
Securities Authorized for Issuance Under Equity Compensation Plans
Not applicable.
Performance Graph
Not applicable.
Use of Proceeds from our Initial Public Offering
On October 17, 2007, we consummated our initial public offering of 9,000,000 units, and on the
same date, we consummated the sale of an additional 1,255,000 units pursuant to the exercise of the
underwriters over-allotment option. Each unit consists of one share of common stock and one
warrant. Each warrant entitles the holder to purchase from us one share of our common stock at an
exercise price of $5.50. Each warrant will become exercisable on the later of our completion of a
business combination or October 17, 2008 and will expire on October 17, 2011, or earlier upon
redemption. The securities sold in this offering were registered under the Securities Act of 1933
on a registration statement on Form S-1 (File No. 333-143856) that was declared effective by the
SEC on October 17, 2007. Our underwriters were Pali Capital, Inc. and Maxim Group LLC.
In connection with our offering and the exercise of the over-allotment option, we incurred a
total of $5,742,800 in underwriting discounts and $600,000 for costs and expenses related to the
offering. The underwriters agreed to defer $3,281,600 of the underwriting discount (equal to 4% of
the gross proceeds of the offering). These proceeds are held in the trust account and will not be
released until the earlier to occur of the completion of our initial business combination or our
liquidation. In addition, the trust account holds the proceeds from the sale of the warrants on a
private placement basis. In total, we deposited $78,878,800 in the trust account.
On October 17, 2007, we consummated the sale to the representatives of the underwriters, for
$100, of an option to purchase up to a total of an aggregate of 700,000 units. This option is
exercisable at $10.00 per unit. The purchase option, as well as the units issuable upon exercise of
the purchase option, the shares of common stock and warrants underlying the units, and the shares
of common stock issuable upon exercise of the warrants included in the units were registered under
the Securities Act on the same registration statement on Form S-I (File No. 333-143856).
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes the relevant financial data for our business and should be read
with our financial statements which are included in this report.
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For the period from |
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For the period |
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For the year |
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May 1, 2007 |
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May 1, 2007 |
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ended |
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(Inception) to |
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(Inception) to |
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December 31, |
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December 31, |
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December 31, |
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Statement of Operations Data |
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2008 |
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2007 |
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2008 |
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Statement of Operations Data |
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Formation and operating expenses |
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$ |
(1,993,784 |
) |
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$ |
(295,598 |
) |
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$ |
(2,289,382 |
) |
Interest expense |
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(2,664 |
) |
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(2,664 |
) |
Interest income |
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1,618,677 |
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488,358 |
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2,107,035 |
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(Loss) income before taxes |
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(375,107 |
) |
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190,096 |
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(185,011 |
) |
Income tax |
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Net (loss) income |
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$ |
(375,107 |
) |
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$ |
190,096 |
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$ |
(185,011 |
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Net (loss) income per share |
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Basic |
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$ |
(0.03 |
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$ |
0.04 |
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Diluted Pro-forma |
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$ |
(0.03 |
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$ |
0.03 |
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Weighted average shares
outstanding: |
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Basic |
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12,505,000 |
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5,389,286 |
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Diluted Pro-forma |
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12,505,000 |
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6,306,169 |
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25
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December 31, |
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December 31, |
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Balance Sheet Data |
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2008 |
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2007 |
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Working capital (deficit)(excluding cash
held in the trust account for taxes) |
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$ |
(165,098 |
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$ |
366,278 |
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Total assets |
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81,384,534 |
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81,644,103 |
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Total liabilities (excluding
deferred underwriting fees held
in the trust account) |
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414,563 |
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299,025 |
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Common stock, subject to
possible conversion of
3,075,475 shares (including interest income) |
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24,327,678 |
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24,285,542 |
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Total stockholders equity |
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53,360,693 |
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53,777,936 |
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The total assets amount includes $81,119,299 at December 31, 2008 and $80,978,800 at December
31, 2007 being held in the trust account, which will be available (less taxes paid) only upon the consummation of a
business combination within the time period described in this Form 10-K. If a business combination
is not so consummated, we will be dissolved and the proceeds held in the trust account will be
distributed solely to our public shareholders.
We will not proceed with a business combination if public shareholders owning 30% or more of
the shares sold in our initial public offering vote against the business combination and exercise
their conversion rights.
Accordingly, we may effect a business combination if public shareholders owning less than 30%
of the shares sold in our initial public offering exercise their conversion rights. If this occurs,
we would be required to convert approximately 29.99% of the 10,255,000 shares of common stock sold
in our initial public offering to cash, or 3,075,475 shares of common stock, at an initial per
share conversion price of $7.90 without taking into account interest earned on the trust account.
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ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
We were formed under the laws of the State of Delaware on May 1, 2007 to serve as a vehicle to
effect a merger, capital stock exchange, asset acquisition or other similar business combination
with an operating business in the entertainment, media and communication industries. We intend to
utilize cash derived from the proceeds of our initial public offering, our capital stock, debt or a
combination of cash, capital stock and debt, in effecting a business combination.
On October 17, 2007, our initial public offering of 9,000,000 units at $8.00 per unit was
declared effective and we sold an additional aggregate 1,255,000 units pursuant to the
underwriters over-allotment option of the initial public offering. Simultaneously with the
consummation of our initial public offering we sold an aggregate of 2,100,000 insider warrants to
certain initial shareholders including Theodore S. Green, Malcolm Bird, Jonathan F. Miller and the
John W. Hyde Living Trust, at a price of $1.00 per warrant, for an aggregate price of $2,100,000.
The total gross proceeds from the initial public offering, excluding the warrants sold on a private
placement basis but including the over-allotment, amounted to $82,040,000. After the payment of
offering expenses, inclusive of the deferred underwriting fees, the net proceeds to us amounted to
$75,748,282.Each unit consists of one share of the Companys common stock, $0.001 par
value, and one redeemable common stock purchase warrant. Each warrant entitles the holder to
purchase from us one share of common stock at an exercise price of $5.50 commencing the later of
the completion of an initial business combination or one year from the effective date of the
initial public offering (October 17, 2008) and expiring four years from the effective date of the
initial public offering (October 17, 2011). Accordingly, the warrants are currently exercisable by
their terms. However, there is not currently an effective registration statement with respect to
the exercise of such warrants and accordingly the warrants could not be exercised.
26
In connection with our initial public offering, we issued an option, for $100, to the
representatives of the underwriters in our initial public offering, to purchase 700,000 units. This
option is exercisable at $10.00 per unit, and may be exercised on a cashless basis, commencing on
the later of the consummation of a business combination and one year from the date of our initial
public offering and expiring five years from the date of our initial public offering. The option
and the 700,000 units, the 700,000 shares of common stock and the 700,000 warrants underlying such
units, and the 700,000 shares of common stock underlying such warrants, have been deemed
compensation by the NASD and are therefore subject to a 180-day lock-up pursuant to Rule 2710(g)(1)
of the NASD Conduct Rules. The underwriters will not sell, transfer, assign, pledge, or hypothecate
this option or the securities underlying this option, nor will they engage in any hedging, short
sale, derivative, put, or call transaction that would result in the effective economic disposition
of this option or the underlying securities for a period of 360 days from the effective date of our
initial public offering.
We estimate that the value of the representatives unit purchase option is approximately
$2,207,000 using a Black-Scholes option pricing model. The fair value of the representatives unit
purchase option is estimated as of the date of the grant using the following assumptions:
(1) expected volatility of 45.2%, (2) risk-free discount rate of 4.95%, (3) contractual life of
five years and (4) dividend rate of zero. Additionally, the option may not be sold, transferred,
assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period)
following the date of our initial public offering except to any underwriter and selected dealers
participating in the offering and their bona fide officers or partners. Although the purchase
option and its underlying securities have been registered under the registration statement of which
our initial public offering forms a part, the option grants to holders demand and piggy back
rights for periods of five and seven years, respectively, from the date of our initial public
offering with respect to the registration under the Securities Act of the securities directly and
indirectly issuable upon exercise of the option. We will bear all fees and expenses attendant to
registering the securities, other than underwriting commissions which will be paid for by the
holders themselves. The exercise price and number of units issuable upon exercise of the option may
be adjusted in certain circumstances including in the event of a stock dividend, or our
recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted
for issuances of common stock at a price below its exercise price.
Since our initial public offering, we have been actively searching for a suitable business
combination candidate. We currently have not entered into any definitive agreement with any
potential target businesses. We have met with service professionals and other intermediaries to
discuss our company, the background of our management and our combination preferences. In the
course of these discussions, we have also spent time explaining the capital structure of the
initial public offering, the combination approval process and the timeline within which we must
either enter into a letter of intent or definitive agreement for a business combination, or return
the proceeds of the initial public offering held in the trust account to investors. We cannot
assure investors that we will find a suitable business combination in the allotted time.
We are currently in the process of evaluating and identifying targets for an initial
transaction. We are not presently engaged in, and will not engage in, any substantive commercial
business until we consummate an initial transaction. We intend to utilize cash derived from the
proceeds of our initial public offering, the private placement, our capital stock, debt or a
combination of cash, capital stock and debt, in effecting an initial transaction. The issuance of
additional shares of our capital stock:
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may significantly reduce the equity interest of our current stockholders; |
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may subordinate the rights of holders of common stock if preferred stock is issued with
rights senior to those afforded to our common stock; |
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may cause a change in control if a substantial number of our shares of common stock or
preferred stock are issued, which may affect, among other things, our ability to use our net
operating loss carry forwards, if any, and most likely also result in the resignation or removal of
one or more of our present officers and directors; and |
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could enhance or adversely affect prevailing market prices for our securities. |
27
Similarly, if we issued debt securities, it could result in:
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default and foreclosure on our assets, if our operating revenues after an initial
transaction were insufficient to pay our debt obligations; |
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acceleration of our obligations to repay the indebtedness, even if we have made all
principal and interest payments when due, if the debt security contained covenants that required
the maintenance of certain financial ratios or reserves and any such covenant were breached without
a waiver or renegotiation of that covenant; |
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our immediate payment of all principal and accrued interest, if any, if the debt security
was payable on demand; and |
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our inability to obtain additional financing, if necessary, if the debt security contained
covenants restricting our ability to obtain additional financing while such security was
outstanding. |
We anticipate that we would only consummate such a financing simultaneously with the
consummation of a business combination, although nothing would preclude us from raising more
capital in anticipation of a possible business combination.
We may use all or substantially all of the proceeds held in trust other than the deferred
portion of the underwriters fee to acquire one or more target businesses. We may not use all of
the proceeds held in the trust account in connection with a business combination, either because
the consideration for the business combination is less than the proceeds in trust or because we
finance a portion of the consideration with capital stock or debt securities that we can issue. In
that event, the proceeds held in the trust account as well as any other net proceeds not expended
will be used to finance the operations of the target business or businesses. The operating
businesses that we acquire in such business combination must have, individually or collectively, a
fair market value equal to at least 80% of our net assets (all of our assets, including the funds
held in the trust account, less our liabilities) at the time of such acquisition. If we consummate
multiple business combinations that collectively have a fair market value of 80% of our net assets,
then we would require that such transactions are consummated simultaneously.
If we are unable to find a suitable target business by October 17, 2009, we will be forced to
liquidate. If we are forced to liquidate, the per share liquidation amount may be less than the
initial per unit offering price because of the underwriting commissions and expenses related to our
initial public offering and because of the value of the warrants in the per unit offering price.
Additionally, if third parties make claims against us, the initial public offering proceeds held in
the trust account could be subject to those claims, resulting in a further reduction to the per
share liquidation price. Under Delaware law, our stockholders who have received distributions from
us may be held liable for claims by third parties to the extent such claims have not been paid by
us. Furthermore, our warrants will expire worthless if we liquidate before the completion of a
business combination.
Liquidity and Capital Resources
$80,978,800 of the net proceeds of our initial public offering, over-allotment exercise,
private sale of warrants, and a portion of the underwriters discounts and expense allowance were
deposited in trust, with the remaining net proceeds being placed in our operating account. We are
using the interest income earned on the trust proceeds of $1,500,000 to identify, evaluate and
negotiate with prospective acquisition candidates as well as cover our ongoing operating expenses
until a transaction is approved by our shareholders or the trust funds are returned to them.
We will use substantially all of the net proceeds of the initial public offering to acquire a
target business, including identifying and evaluating prospective acquisition candidates, selecting
the target business, and structuring, negotiating and consummating the business combination. To the
extent that our capital stock is used in whole or in part as consideration to effect a business
combination, the proceeds held in the trust fund as well as any other net proceeds not expended
will be used to finance the operations of the target business. We do not believe we will need to
raise additional funds in order to meet the expenditures required for operating our business.
However, we may need to raise additional funds through a private or public offering of debt or
equity securities if such funds are required to consummate a business combination that is presented
to us. We would only consummate such a financing simultaneously with the consummation of a business
combination. At December 31, 2008, we had cash outside of the trust fund of $159,689 and other
current assets of $105,546 and total liabilities of $3,696,163 (including $3,281,600 of deferred
underwriting fees).
Therefore, at December 31, 2008, the Company has incurred liabilities which exceed cash
available. The Company is seeking to obtain deferrals of payables from its vendors, including its
professional advisors, except its independent accountants. The Company may also seek additional financing, including loans from its
Initial Stockholders. Accordingly the Company may not be able continue as a going concern.
28
The $3,281,600 of the funds attributable to the deferred underwriting discount and commissions
in connection with the offering and private placement will be released to the underwriters upon
completion of a business combination as such term is defined in our prospectus filed on Form 424B4
on October 18, 2007 with the Securities and Exchange Commission.
Commencing on October 17, 2007 we began incurring a fee of $6,400 per month for certain
administrative services. In addition, in 2007, one of our initial stockholders loaned to us an
aggregate of $100,000 for payment of offering expenses on our behalf. This loan plus interest was
repaid on December 12, 2007 from the proceeds of the initial public offering that were allocated to
pay offering expenses.
Going Concern
Going concern consideration As indicated in the accompanying financial statements, at December
31, 2008 the Company had unrestricted cash of $159,689 and $398,793 in accrued expenses exclusive
of income taxes payable of $15,770. However, the Company has incurred and expects to incur
significant costs in pursuit of its acquisition plans. In addition, there is no assurance that the
Company will successfully complete a Business Combination by October 17, 2009. If such business
combination is not consummated the Company will be forced to liquidate upon expiration of this time
constraint.
As of December 31, 2008 the Company withdrew $1,500,000 of interest from the trust for operating
expenses (excluding $445,924 of interest earned and used to pay taxes). Since inception to December
31, 2008 the Company has incurred $1,829,561 of operating expenses (excluding taxes) of which
$398,002 was payable as of December 31, 2008. The Company had cash available at December 31, 2008
of $159,689 for operating expenses. Therefore, at December 31, 2008, the Company has incurred
liabilities which exceed cash available. The Company expects to incur additional costs in pursuit
of its acquisition plans. The Company is seeking to obtain deferrals of payables from its vendors,
including its professional advisors except for its independent accountants. In the event the
Company is unsuccessful in obtaining these deferrals, it may seek additional financing, including
loans from its Initial Stockholders. These factors, among others, raise substantial doubt about the
Companys ability to continue operations as a going concern. The accompanying financial statements
do not include any adjustments that may result from the outcome of this uncertainty.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date, other than in
connection with our initial public offering. Our entire activity since inception has been to
prepare for and consummate our initial public offering and to identify and investigate targets for
a potential business combination. We will not generate any operating revenues until consummation of
a business combination. We will generate non-operating income in the form of interest income on
cash and cash equivalents from the funds held in our trust account which we invested mainly in a
New York Tax Free Money Market.
For the year ended December 31, 2008, we had a net loss of $(375,107), excluding $42,736 of interest income net of taxes, attributable to stockholders subject to possible conversion, consisting of $1,618,677
of interest income earned predominantly on the trust account, less $1,993,784 of formation and
operating expenses. The main components of the formation and operating expenses include
approximately $1,029,916 of due diligence expenses related to potential acquisitions, $343,024 of
New York State, New York City and Delaware Capital and Franchise Taxes, $66,510 of travel and
business expense, $153,144 of accounting fees, and $118,692 of legal expense.
For the period from May 1, 2007 (inception) to December 31, 2007, we had a net income of
$190,096 consisting of $488,358 of interest income, less $295,598 of formation and operating
expenses. The main components of the formation and operating expenses include approximately
$118,671 of New York State, New York City, and Delaware Franchise and Capital Taxes, $40,539 of
travel and business expense, $45,500 of accounting fees, and $40,646 of legal expense.
Interest income in fiscal 2008 and 2007 was primarily earned on the net proceeds from our
initial public offering which was placed in a trust account.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financing arrangements and have not established
any special purpose entities. We have not guaranteed any debt or commitments of other entities or
entered into any options on non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations,
purchase obligations or other long-term liabilities.
Recently Issued Accounting Pronouncements and Their Effect on the Companys Financial Statement
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48), which addresses the accounting for
uncertainty in income taxes recognized in the financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. FIN 48 provides guidance on the financial
statement recognition and measurement of a tax position taken on the
Companys tax return. FIN 48 also provides guidance on classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for
interim periods of fiscal years beginning after December 15, 2006. Adoption of Fin 48 did not have
a material impact on the Companys financial position or results of operations. The Company
intends to classify any future expense for income tax related interest and penalties as component
of tax expense.
29
In September 2006, the FASB issued Statement of Financial Accounting Standard 157 Fair Value
Measurements, or FAS 157. FAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about fair value
measurements. FAS 157 applies under other accounting pronouncements that require or permit fair
value measurements. Accordingly, FAS 157 does not require any new fair value measurements. However,
for some entities, the application of FAS 157 will change current practice. FAS 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Company adopted SFAS 157 beginning in the first quarter of
fiscal year 2008 and the adoption of SFAS 157 did not have a material impact to its consolidated
results of operations and financial position.
In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51 (FASB 160). This statement amends ARB 51 to establish
accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity in the consolidated
financial statements. In addition, FASB 160 changes the way the consolidated income statement is
presented by requiring consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. This statement also establishes a
single method of accounting for changes in a parents ownership interest in a subsidiary that do
not result in deconsolidation and requires that a parent recognize a gain or loss in net income
when a subsidiary is deconsolidated. This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is
prohibited. FASB 160 shall be applied prospectively as of the beginning of the fiscal year in which
this statement is initially applied, except for the presentation and disclosure requirement which
shall be applied retrospectively for all periods presented. We have not yet determined the impact
that this requirement may have on our condensed consolidated financial position, results of
operations, cash flows or financial statement disclosures for future acquisitions.
In December 2007, FASB issued SFAS No. 141R, Business Combinations (FASB 141R). FASB 141R
replaces FASB Statement No. 141 Business Combinations but retains the fundamental requirements in
FASB 141. This statement defines the acquirer as the entity that obtains control of one or more
businesses in the business combination and establishes the acquisition date as the date that the
acquirer achieves control. FASB 141R also requires that an acquirer recognized the assets acquired,
the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date,
measured at their fair values as of that date. In addition, this statement requires that the
acquirer in a business combination achieved in stages to recognize the identifiable assets and
liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their
fair values. FASB 141R is applied prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. An entity may not apply the standard before
that date. FASB 141R will be applied prospectively for acquisitions beginning in 2009 or thereafter.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159), which permits entities to choose to measure many financial
instruments and certain other items at fair value. SFAS 159 is effective for the first quarter of
2008. The Company did not have certain financial instruments to elect fair value accounting; therefore,
the adoption of SFAS 159 did not have an impact on the Companys financial statements.
In October 2008, the FASB issued FASB Staff Position FAS 157-3, Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active (FSP 157-3), FSP 157-3 clarified
the application of FAS 157. FSP 157-3 demonstrated how the fair value of a financial asset is
determined when the market for that financial asset is inactive. FSP 157-3 was effective upon
issuance, including prior periods for which financial statements had not been issued. The
implementation of this standard did not have an impact on the Companys financial statements.
30
In March 2008, the FASB issued SFAS No. 161 (SFAS 161). Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 161 requires companies to
provide enhanced disclosures regarding derivative instruments and hedging activities in order to
better convey the purpose of derivative use in terms of risk management. Disclosures about (i) how
and why an entity used derivative instruments, (ii) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations, and (iii) how
derivative instruments and related hedged items affect a companys financial position, financial
performance, and cash flows, are required. This Statement retains the same scope as SFAS No. 133
and is effective for fiscal years and interim periods beginning after November 15, 2008. The
Company is currently evaluating the impact, if any, that the adoption of SFAS No. 161 will have on
its consolidated financial position and results of operations.
In June 2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1), which
is effective January 1, 2009. FSP EITF 03-6-1 clarifies that share-based payment awards that
entitle holders to receive nonforfeitable dividends before they vest will be considered
participating securities and included in the basic earnings per share calculation. The Company is
assessing the impact of adoption FSP EITF 03-6-1 on its results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair
value of a financial instrument. These changes may be the result of various factors, including
interest rates, foreign exchange rates, commodity prices and/or equity prices. Our exposure to
market risk is limited to interest income sensitivity with respect to the funds placed in the trust
account. Since the funds held in our trust account have been invested in only high-quality
commercial paper, municipal bonds, and municipal notes, including tax and revenue authorization
notes, tax anticipation notes, with maturities of 397 days or less and a dollar-weighted average
portfolio maturity of 90 days or less, we are subject to market risk primarily through the effect
of changes in interest rates and government securities. The effect of other changes, such as
foreign exchange rates, commodity prices and/or equity prices, does not pose significant market
risk to us.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included in this annual report on Form 10-K as pages F-1 through
F-14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
31
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We evaluated the effectiveness of our disclosure controls and procedures, as defined in the
Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Theodore S.
Green and Malcolm Bird, our Co-Chief Executive Officers participated in this evaluation. Based upon
that evaluation, Messrs. Green and Bird concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this Annual Report on Form 10-K.
Managements Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management, with the participation of Messrs. Green and Bird, assessed the effectiveness of our internal control
over financial reporting as of December 31, 2008. Management concluded that, as of December 31, 2008, our internal control over financial reporting was effective.
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting
firm pursuant to temporary rules of the SEC that permit us to provide only managements report in this annual report.
Changes in Internal Controls over Financial Reporting
As a result of the evaluation completed by Messrs. Green and Bird, we have concluded that
there were no changes during the quarter ended December 31, 2008 in our internal controls over
financial reporting in connection with
the evaluation required by Rule 13a-15(d) under the Exchange Act, which have materially
affected, or are reasonably likely to materially affect, our internal controls over financial
reporting.
ITEM 9B. OTHER INFORMATION
Not
applicable.
32
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers.
Except as set forth below, the following table sets forth certain information with respect to
our directors and executive officers as of December 31, 2008:
|
|
|
|
|
Name |
|
Age |
|
Position |
Theodore S. Green |
|
56 |
|
Chairman, Co-Chief Executive Officer, interim Chief Financial Officer and Director |
Malcolm Bird |
|
41 |
|
Co-Chief Executive Officer and Director |
John W. Hyde |
|
67 |
|
Director |
Jonathan F. Miller |
|
52 |
|
Director |
Theodore S. Green
Theodore (Ted) S. Green has served as our Chairman, Co-Chief Executive Officer, interim Chief
Financial Officer and a director since our inception. From 2003 to 2006, Mr. Green was the Chief
Executive Officer of Anchor Bay Entertainment, which at such time was the subsidiary of IDT
Entertainment, Inc. that focused on the production, marketing and distribution of various media.
Mr. Green began serving as Chief Executive Officer, with the acquisition of Anchor Bay from The
Handleman Co. Mr. Green had full operating authority over the marketing, financial, sales,
products, operations, legal, business and corporate resources departments. Prior to that, in 2001,
Mr. Green established Greenlight Consulting Inc., a project-based consulting practice focused on
the media and entertainment industry. Greenlight Consultings clients include Sony Music and
Vivendi-Universal as well as numerous other regional media organizations. Prior to founding
Greenlight Consulting, in 2000, Mr. Green was President and Chief Operating Officer of MaMaMedia,
Inc., an Internet company that creates activity-based learning products for children and their
families. From 1992 to 2000, Mr. Green was the founder and President of Sony Wonder, the division
of Sony BMG Music Entertainment responsible for the production and distribution of media geared
toward youthful audiences and also for all home video distribution. Mr. Green was responsible for
all creative, production, operations, finance, marketing and business efforts. Beginning in 1989,
Mr. Green was the Executive Vice President of Administration and Operations for ATCO Records, a
music industry label co-owned with The Warner Music Group. Mr. Green was responsible for all
business, legal and financial operations. From 1982 until 1989, Mr. Green served as the Senior Vice
President of Polygram Records, overseeing the Business Affairs and Music Publishing divisions of
the company. Mr. Green was responsible for negotiations, administration, rights and contracts.
Mr. Greens career in the entertainment industry began first in the legal department and thereafter
as the Director of Business Affairs for CBS Records. Prior to that Mr. Green practiced general
entertainment law at the firm of Moses Singer. Mr. Green holds a BS from Cornell University and
received his JD from Columbia University School of Law.
Malcolm Bird
Malcolm Bird has served as our Co-Chief Executive Officer and a director since our inception.
Mr. Bird has worked in the entertainment industry for the past 25 years. Mr. Bird served as senior
vice president of kids and teens for AOL from December 2002 through his resignation in March 2007.
Mr. Bird was responsible for strategy, development, instigation, sales, staffing, business
development, marketing, and public relations. From 1995 to 1997 Mr. Bird was Director of
International Programming at Hanna-Barbera Studio responsible for program development, negotiation
with international broadcasters, production, licensing development, liaison with International
Cartoon Network and branding for Europe, Asia Pacific and Latin America. From 1997 to 1999,
Mr. Bird was head of youth programming at USA Broadcasting. Working with the senior management
team, (Jon Miller and Barry Diller), Mr. Bird was responsible for 20 hours of Barry Dillers new
CityVision network, WAMI. From 1999 to 2002, Mr. Bird was President of Craftsman Productions,
Inc., a company he co-founded in 1995 to develop and produce innovative programs for television.
Mr. Bird created, developed and sold into broadcast and cable networks programming. Mr. Bird has
been involved in publishing, marketing, public relations, radio, television development, television
production, international business (overseeing operations in Europe, Asia Pacific, and Latin
America for a Hollywood studio), and multi-platform business
development. Mr. Bird has received two Emmy awards and two Telly awards. Mr. Bird sits on the
executive board of directors of the National Childrens Museum in Washington, D.C.
33
Jonathan F. Miller
Jonathan (Jon) F. Miller has served as a director since June 15, 2007. Mr. Miller is an
advisor to General Atlantic LLC with respect to its Media and Consumer sector and a founder of
Velocity Investment Group. From 2002 to 2006, Mr. Miller served as Chairman and Chief Executive
Officer of AOL Inc. and AOL LLC. From 2000 to 2002, Mr. Miller was Chief Executive Officer and
President of USA Information and Services, now IACI and Expedia (the company split in two in 2005).
In this period, Mr. Miller acted as a corporate officer and served on four public boards of related
entities. Mr. Miller joined USA in 1997 as Chief Executive Officer and President of USA
Broadcasting. Prior to USA, from 1993 to 1997, Mr. Miller was Managing Director of Nickelodeon
International, a unit of Viacoms MTV Networks. During this period, Mr. Miller also acted as Chief
Executive Officer of several Nickelodeon and Paramount Pictures channels that were joint ventures
with such partners as BSkyB in the UK and Foxtel in Australia. Under Mr. Millers guidance, program
distribution was extended to over 100 territories including sales to the BBC, ITV, Channel 4, ARD
(Germany), ABC (Australia), and RAI (Italy). From 1987 to 1993, Mr. Miller was Vice-President,
Programming and Co-General Manager of NBA Entertainment. In this capacity, Mr. Miller worked with
NBA sponsors in fashioning and executing their sports marketing programs across electronic media,
print and retail. Previous positions included positions at WGBH in Boston, MA (PBS) in educational
programming and in various advertising and video production roles in Boston. Mr. Miller is on the
Board of Directors of Idearc Inc., Next New Networks, Mahalo.com Incorporated, Kosmix Corporation
and Hanley Wood, LLC. Mr. Miller is also on the Board of the American Film Institute, a trustee of
Emerson College, and of WNYC Public Radio in NY.
John W. Hyde
John W. Hyde has served as a director since October 1, 2007. Mr. Hyde has recently founded
Rehab Incorporated which consists of Rehab Entertainment, a television and film, and intellectual
rights company, as well as Rehab Consulting, an entertainment and media consulting company. Rehab
Consulting is continuing to advise Starz Media on Vanguard Entertainment and the Vanguard Studios
in Vancouver and is currently working with the Jim Henson Company to expand their operation and
bring in additional production financing. Rehab Entertainment is currently developing three feature
films, Short Circuit 3 for the Weinstein Company, Lil Homiez for Overture Films and Unearth. Mr.
Hyde had served as the Vice Chairman of Starz Media, LLC. Mr. Hyde was responsible for integrating
the IDT Entertainment operations into Starz. From January 2004 to January 2007, Mr. Hyde was the
Chief Operating Officer of IDT Entertainment and Chief Executive Officer of IDTE Productions and
New Ark Entertainment. In those roles, Mr. Hyde oversaw all of IDT Entertainments operations. Mr.
Hyde was responsible for running the day to day operations of IDTEs production and distribution
companies. From 2000 to 2006, Mr. Hyde was the Chief Executive Officer of Film Roman responsible
for running the animation company producing The Simpsons, King of the Hill, Hellboy: Animated,
Eloise, and Wow! Wow! Wubbzy! From 1996 to 2000, Mr. Hyde was court appointed the Chief Executive
Officer and Trustee for Riklis Broadcasting, which he sold on behalf of its creditors, in 1999.
From 1990 through 1995, Mr. Hyde was Chief Executive Officer of MCEG Sterling, a public production
and distribution company, which he reorganized and merged into Orion Pictures. Mr. Hyde has divided
his career between production, distribution, entertainment executive, and industry management
consultant. He has overseen the domestic and foreign distribution of nearly 125 motion pictures and
television shows. His production credits include Short Circuit, The Simpsons, Flight Of The
Navigator; King of the Hill, 8 Million Ways To Die, Never Ending Story, Mighty Mouse, Homicide:
Life On The Streets, 9% Weeks, UHF: and the award-winning Das Boot. As an industry management
consultant Mr. Hyde oversaw the restructuring or reorganization of Avenue Entertainment, Filmstar,
MCEG, Cannon Films, Hemdale Entertainment, Reeves Entertainment, Peregrine Entertainment, Orion,
AME Video, Fires Entertainment, and Riklis Broadcasting (KADYIKADE TV). Mr. Hyde is a member of
both the Academy of Motion Picture Arts & Sciences and the Academy of Television Arts & Sciences
where he has been nominated for five Emmys, winning one. He is a former officer and director of The
Cousteau Society. He was also a founding member, as well as Vice Chairman and board member, of the
American Film Market. Hyde graduated from New York University with additional international
economic studies at Leiden University in Holland.
These individuals will play a key role in identifying and evaluating prospective acquisition
candidates, selecting the target business, and structuring, negotiating and consummating its
acquisition. We believe that the skills and
expertise of these individuals, their collective access to acquisition opportunities and
ideas, their contacts, and their transactional expertise should enable them to successfully
identify and effect an acquisition.
34
Our board of directors is divided into three classes with only one class of directors being
elected in each year and each class serving a three-year term. However, since we did not hold an annual meeting in 2008, the term of office of the first
class of directors, consisting of Mr. Miller, will expire at our next annual meeting of
stockholders and be renewed for a two-year term. The term of office of the second class of directors, consisting of Mr. Bird, will
expire at the next annual meeting. The term of the third class of directors, consisting of
Mr. Green and Mr. Hyde, will expire at the second annual meeting.
Prior Involvement of Principals in Blank Check Companies
None of our directors or officers has been or currently is a principal of, or affiliated with,
entities, including other blank check companies, engaged in business activities similar to those
intended to be conducted by us.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors and
persons who own more than ten percent of a registered class of our equity securities to file
reports of ownership and changes in ownership with the SEC. Officers, directors and ten percent
stockholders are required by regulation to furnish us with copies of all Section 16(a) forms they
file. Based solely on copies of such forms received, we believe that, during the fiscal year ended
December 31, 2008, all filing requirements applicable to our officers, directors and greater than
ten percent beneficial owners were complied with.
Code of Ethics
We have adopted a code of ethics that applies to all of our executive officers, directors and
employees. The code of ethics codifies the business and ethical principles that govern all aspects
of our business. We have filed copies of our code of ethics and our board committee charters as
exhibits to the registration statement in connection with our initial public offering. These
documents can be accessed by reviewing our public filings on the SECs web site at www.sec.gov. In
addition, a copy of the code of ethics will be provided without charge upon request to us in
writing at 307 East 87th Street, New York, NY 10128 or by telephone at (212) 289-6942. We intend to
disclose any amendments to or waivers of certain provisions of our code of ethics in a Current
Report on Form 8-K.
Committees of the Board of Directors
Nominating
Committee.
Effective upon consummation of our initial public offering, we established a nominating
committee of the board of directors consisting of Messrs. Bird, Miller and Hyde. Mr. Miller and Mr.
Hyde are independent directors under the American Stock Exchanges listing standards. The
nominating committee is responsible for overseeing the selection of persons to be nominated to
serve on our board of directors. The nominating committee considers persons identified by its
members, management, shareholders, investment bankers and others.
Guidelines for Selecting Director Nominees
The guidelines for selecting nominees, which are specified in the Nominating Committee
Charter, generally provide that persons to be nominated:
|
|
|
should have demonstrated notable or significant achievements in business, education or
public service; |
|
|
|
should possess the requisite intelligence, education and experience to make a significant
contribution to the board of directors and bring a range of skills, diverse perspectives and
backgrounds to its deliberations; and |
|
|
|
should have the highest ethical standards, a strong sense of professionalism and intense
dedication to serving the interests of the stockholders. |
35
The nominating committee will consider a number of qualifications relating to management and
leadership experience, background and integrity and professionalism in evaluating a persons
candidacy for membership on the board of directors. The nominating committee may require certain
skills or attributes, such as financial or accounting experience, to meet specific board needs that
arise from time to time. The nominating committee does not distinguish among nominees recommended
by shareholders and other persons.
Compensation
Committee.
Effective upon consummation of our initial public offering, we established a compensation
committee of the board of directors consisting of Messrs. Green, Miller and Hyde. Mr. Miller and
Mr. Hyde are independent directors under the American Stock Exchanges listing standards. The
compensation committees duties, which are specified in our Compensation Committee Charter,
include, but are not limited to:
|
|
|
evaluating the performance of our named executive officers and approve their
compensation; |
|
|
|
preparing an annual report on executive compensation for inclusion in our proxy
statement; |
|
|
|
reviewing and approving compensation plans, policies and programs, considering their
design and competitiveness; |
|
|
|
administering and reviewing changes to our equity incentive plans pursuant to the terms
of the plans; and |
|
|
|
reviewing our non-employee independent director compensation levels and practices and
recommending changes as appropriate. |
The compensation committee will review and approve corporate goals and objectives relevant to
our Chief Executive Officers compensation, evaluate our Chief Executive Officers performance in
light of those goals and objectives, and recommend to the board our Chief Executive Officers
compensation levels based on its evaluation.
Audit
Committee.
Effective upon consummation of our initial public offering, we established an audit committee
of the board of directors consisting of Messrs. Green, Miller and Hyde. Mr. Miller and Mr. Hyde are
independent directors under the American Stock Exchanges listing standards. The audit committees
duties, which are specified in our Audit Committee Charter, include, but are not limited to:
|
|
|
reviewing and discussing with management and the independent auditor the annual audited
financial statements, and recommending to the board whether the audited financial statements
should be included in our Form 10-K; |
|
|
|
discussing with management and the independent auditor significant financial reporting
issues and judgments made in connection with the preparation of our financial statements; |
|
|
|
discussing with management major risk assessment and risk management policies; |
|
|
|
monitoring the independence of the independent auditor; |
|
|
|
verifying the rotation of the lead (or coordinating) audit partner having primary
responsibility for the audit and the audit partner responsible for reviewing the audit as
required by law; |
|
|
|
reviewing and approving all related-party transactions; |
|
|
|
inquiring and discussing with management our compliance with applicable laws and
regulations; |
|
|
|
pre-approving all audit services and permitted non-audit services to be performed by our
independent auditor, including the fees and terms of the services to be performed; |
36
|
|
|
appointing or replacing the independent auditor; |
|
|
|
determining the compensation and oversight of the work of the independent auditor
(including resolution of disagreements between management and the independent auditor
regarding financial reporting) for the purpose of preparing or issuing an audit report or
related work; and |
|
|
|
establishing procedures for the receipt, retention and treatment of complaints received
by us regarding accounting, internal accounting controls or reports which raise material
issues regarding our financial statements or accounting policies. |
Financial Experts on Audit Committee
The audit committee currently consists of Messrs. Green, Miller and Hyde. Within one year from
our initial public offering, this committee was to be composed exclusively of independent directors
who are financially literate as defined under the NYSE
Amex listing standards. To date, not all of the committee members are
independent. The
NYSE Amex listing standards define financially literate as being able to read and
understand fundamental financial statements, including a companys balance sheet, income statement
and cash flow statement.
In addition, we must certify within one year from the date of our initial public offering to
the NYSE Amex that the committee has, and will continue to have, at least one member
who has past employment experience in finance or accounting, requisite professional certification
in accounting, or other comparable experience or background that results in the individuals
financial sophistication. The board of directors intends to appoint an additional director who satisfies
the NYSE Amexs definition of financial sophistication and also qualifies as an
audit committee financial expert, as defined under rules and regulations of the SEC or nominate such additional director for election at our next annual meeting at which directors are elected.
ITEM 11. EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Compensation Discussion and Analysis
No executive officer has received any cash compensation for services rendered to us.
Commencing on the date of our initial public offering through the acquisition of a target business,
we will pay our management stockholders, an affiliate of our management stockholders or third
parties a fee of $6,400 per month for providing us with certain administrative, technology and
secretarial services, as well as the use of certain limited office space. However, this arrangement
is solely for our benefit and is not intended to provide our management stockholders compensation
in lieu of a salary. Other than the $6,400 per month administrative fee, no compensation of any
kind, including finders, consulting or other similar fees, will be paid to any of our management
stockholders, including our directors, or any of their respective affiliates, prior to, or for any
services they render in order to effectuate, the consummation of a business combination. However,
our initial stockholders will be reimbursed for any out-of-pocket expenses incurred in connection
with activities on our behalf such as identifying potential target businesses and performing due
diligence on suitable business combinations. There is no limit on the amount of these out-of-pocket
expenses and there will be no review of the reasonableness of the expenses by anyone other than our
board of directors, which includes persons who may seek reimbursement, or a court of competent
jurisdiction if such reimbursement is challenged.
Other than the securities described in Item 12 appearing below in this Annual Report on Form
10-K entitled Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters, none of our officers or our directors has received any of our equity
securities.
Compensation Committee Interlocks and Insider Participation
None.
Compensation Committee Report
The Compensation Committee of the board of directors has reviewed and discussed with our
management the Compensation Discussion and Analysis. Based on this review and these discussions
with management, the
Compensation Committee recommended to the board of directors that the Compensation Discussion
and Analysis be included in this Annual Report on Form 10-K.
37
|
|
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
Unless otherwise indicated, we believe that all persons named in the table below have sole
voting and investment power with respect to all shares of common stock beneficially owned by them.
The following table does not reflect record or beneficial ownership of the initial stockholders
warrants, as these warrants are not exercisable within 60 days of the date hereof.
|
|
|
|
|
|
|
|
|
|
|
Amount and |
|
|
Approximate Percentage |
|
|
|
Nature of Beneficial |
|
|
of Outstanding |
|
Name of Beneficial Owner |
|
Ownership |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Theodore S. Green(1)(2) |
|
|
1,237,500 |
|
|
|
9.9 |
% |
|
Malcolm Bird(1) |
|
|
787,500 |
|
|
|
6.3 |
% |
|
Jonathan F. Miller(1) |
|
|
112,500 |
|
|
|
1.0 |
% |
|
John W. Hyde(1) (3) |
|
|
112,500 |
|
|
|
1.0 |
% |
|
QVT Financial LP(4) |
|
|
1,035,800 |
|
|
|
8.28 |
% |
|
Millenco LLC(5) |
|
|
971,201 |
|
|
|
7.77 |
% |
|
HBK Investments L.P.(6) |
|
|
942,453 |
|
|
|
7.54 |
% |
|
Bulldog Investors(7) |
|
|
2,340,350 |
|
|
|
18.72 |
% |
|
Platinum Partners Value Arbitrage Fund, LP.(8) |
|
|
722,949 |
|
|
|
5.78 |
% |
|
Aldebaran Investments LLC(9) |
|
|
728,750 |
|
|
|
5.83 |
% |
|
Citigroup Global Markets Inc.(10) |
|
|
818,080 |
|
|
|
6.54 |
% |
|
All directors and executive officers as a group (4
individuals) |
|
|
2,250,000 |
|
|
|
17.99 |
% |
|
|
|
1 |
|
The business address of each of the individuals is c/o TM Entertainment and Media,
Inc., 307 East 87th Street, New York, NY 10128. |
|
2 |
|
Includes an aggregate of 375,000 shares of common stock owned by two trusts
established for the benefit of Mr. Greens daughters. Effective upon consummation of our initial
public offering, Mr. Green and the trustee of the Trusts entered into a voting agreement under
which Mr. Green has the right to vote the shares owned by the Trusts on all matters that come
before the shareholders of the company, and accordingly Mr. Green has beneficial ownership of such
shares. Mr. Green disclaims any other beneficial or pecuniary interest in such shares. |
|
3 |
|
Includes 112,500 shares of common stock owned by the John W. Hyde Living Trust. |
|
4 |
|
Based on a Schedule 13G/A filed on February 6, 2009 with the SEC jointly on behalf of
QVT Financial LP (QVT Financial), QVT Financial GP LLC (the LLC), QVT Fund LP (the Fund),
and QVT Associates GP LLC (Associates). QVT Financial is the investment manager for the Fund,
which beneficially owns 856,490 shares of Common Stock, and for Quintessence Fund L.P.
(Quintessence), which beneficially owns 93,403 shares of Common
Stock. QVT Financial is also the investment manager for a separate discretionary account managed
for Deutsche Bank AG (the Separate Account), which holds 85,907 shares of Common Stock. QVT
Financial has the power to direct the vote and disposition of the Common Stock held by the Fund,
Quintessence and the Separate Account. Accordingly, QVT Financial may be deemed to be the
beneficial owner of an aggregate amount of 1,035,800 shares of Common Stock, consisting of the
shares owned by the Fund and Quintessence and the shares held in the Separate Account. The LLC, as
General Partner of QVT Financial, may be deemed to beneficially own the same number of shares of
Common Stock reported by QVT Financial. Associates, as General Partner of the Fund and
Quintessence, may be deemed to beneficially own the aggregate number of shares of Common Stock
owned by the Fund and Quintessence, and accordingly, Associates may be deemed to be the beneficial
owner of an aggregate amount of 949,893 shares of Common Stock. Each of QVT Financial and the LLC
disclaims beneficial ownership of the shares of Common Stock owned by the Fund, Quintessence and
the Separate Account. The LLC disclaims beneficial ownership of all shares of Common Stock owned by
the Fund and Quintessence, except to the extent of its pecuniary interest therein. |
38
|
|
|
5 |
|
Based on a Schedule 13G filed on February 14, 2008 with the SEC on behalf of Millenco
LLC, Millennium Management LLC, and Israel A. Englander. |
|
6 |
|
Based on a Schedule 13G/A filed on February 5, 2009 with the SEC on behalf of HBK
Investments L.P., HBK Services LLC, HBK Partners II L.P., HBK Management LLC, HBK Master Fund L.P.
and HBK Special Opportunity Fund I L.P. |
|
7 |
|
Based on a Schedule 13D/A filed on March 16, 2009 with the SEC jointly on behalf of
Bulldog Investors, Phillip Goldstein and Andrew Dakos (collectively, Bulldog). Bulldog has sole
voting power over 1,691,389 shares of Common Stock, shared voting power over 648,961 shares of
Common Stock and sole dispositive power over 2,340,350 shares of Common Stock. |
|
8 |
|
Based on a Schedule 13G filed on September 22, 2008 with the SEC on behalf of
Platinum Partners Value Arbitrage Fund, LP. |
|
9 |
|
Based on a Schedule 13G filed on February 17, 2009 with the SEC on behalf of
Aldebaran Investments LLC. |
|
10 |
|
Based on a Schedule 13G filed on February 12, 2008 with the SEC on behalf of
Citigroup Global Markets Inc., Citigroup Financial Products Inc., Citigroup Global Markets Holdings
Inc. and Citigroup Inc. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
On May 1, 2007, we issued 2,250,000 shares of our common stock to the individuals set forth
below for $25,000 in cash, at a purchase price of approximately $0.01 per share, as follows:
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
Name |
|
Shares |
|
|
Relationship to Us |
Theodore S. Green(1) |
|
|
1,375,000 |
|
|
Chairman, Co-Chief Executive Officer, interim Chief Financial Officer and Director |
Malcolm Bird |
|
|
875,000 |
|
|
Co-Chief Executive Officer and Director |
|
|
|
(1) |
|
Includes an aggregate of 375,000 shares of common stock owned by two
trusts established for the benefit of Mr. Greens daughters. Effective
upon consummation of our initial public offering, Mr. Green and the
trustee of the Trusts entered into a voting agreement under which
Mr. Green has the right to vote the shares owned by the Trusts on all
matters that come before the shareholders of the company, and
accordingly Mr. Green has beneficial ownership of such shares.
Mr. Green disclaims any other beneficial or pecuniary interest in such
shares. |
On June 14, 2007, Mr. Green sold to each of the Trusts established for the benefit of his
daughters 187,500 shares of common stock for a purchase price of approximately $0.01 per share, the
price that Mr. Green paid for the shares.
39
On August 29, 2007, Mr. Green sold to each of Mr. Miller and the John W. Hyde Living Trust
68,750 shares of common stock and Mr. Bird sold to each of Mr. Miller and the John W. Hyde Living
Trust 43,750 shares of common stock, in each case for a purchase price of approximately $0.01 per
share, the price that Mr. Green and Mr. Bird paid for the shares. These sales were contemplated
when the shares were initially issued but were not consummated until Messrs. Hyde and Miller agreed
to serve on our board of directors.
The holders of the majority of these shares will be entitled to make up to two demands that we
register these shares pursuant to an agreement signed on the date of our initial public offering.
The holders of the majority of these shares may elect to exercise these registration rights at any
time commencing on the date on which these shares of common stock are released from escrow. In
addition, these stockholders have certain piggy-back registration rights with respect to
registration statements filed subsequent to the date on which these shares of common stock are
released from escrow. We will bear the expenses incurred in connection with the filing of any such
registration statements.
Simultaneously with the consummation of our initial public offering, our initial stockholders
purchased 2,100,000 insider warrants (for a total purchase price of $2,100,000) from us. These
purchases took place in a private placement that occurred simultaneously with the consummation of
our initial public offering. In connection therewith, Mr. Green and Mr. Bird entered into an
agreement pursuant to which Mr. Bird has agreed to reimburse Mr. Green $300,000 of the amount that
Mr. Green will pay for such warrants in the event we do not consummate a business combination by
October 17, 2009 and are dissolved.
The insider warrants are identical to warrants underlying the units sold in our initial public
offering except that the insider warrants are exercisable on a cashless basis and will not be
redeemable by us so long as they are still held by the purchasers or their affiliates. Each of the
purchasers agreed, pursuant to individual agreements, that he will not sell or transfer the insider
warrants (except to an affiliate of such purchaser, to relatives and trusts for estate planning
purposes, or to our directors at the same cost per warrant originally paid by them) until the later
of October 17, 2008 and 60 days after the consummation of our business combination. The holders of
the majority of these insider warrants (or underlying shares) are entitled to demand that we
register these securities pursuant to an agreement signed on the date of our initial public
offering. The holders of the majority of these securities may elect to exercise these registration
rights with respect to such securities at any time after we consummate a business combination. In
addition, these holders have certain piggy-back registration rights with respect to registration
statements filed subsequent to such date. We will bear the expenses incurred in connection with the
filing of any such registration statements.
Our management stockholders have agreed that, commencing on the effective date of our initial
public offering through the acquisition of a target business, they will make available to us
certain administrative, technology and secretarial services, as well as the use of certain limited
office space. Although we committed to pay to our management stockholders, an affiliate of our
management stockholders or third parties $7,500 per month for these services, they have elected to
receive $6,400 per month. Accordingly, they will benefit from the transaction. However, this
arrangement is solely for our benefit and is not intended to provide our management stockholders
compensation in lieu of a salary. We believe, based on rents and fees for similar services in the
New York City metropolitan area, that the fee charged is at least as favorable as we could have
obtained from an unaffiliated person. However, as our directors may not be deemed independent, we
did not have the benefit of disinterested directors approving this transaction.
We will reimburse our officers and directors for any reasonable out-of-pocket business
expenses incurred by them in connection with certain activities on our behalf such as identifying
and investigating possible target businesses and business combinations. There is no limit on the
amount of out-of-pocket expenses reimbursable by us, which will be reviewed only by our board or a
court of competent jurisdiction if such reimbursement is challenged.
Other than the $6,400 per-month administrative fee and reimbursable out-of-pocket expenses
payable to our officers and directors, no compensation or fees of any kind, including finders
fees, consulting fees or other similar compensation, will be paid to any of our initial
stockholders, officers or directors who owned our common stock prior to our initial public
offering, or to any of their respective affiliates, prior to or with respect to the business
combination (regardless of the type of transaction that it is).
40
All ongoing and future transactions between us and any of our officers and directors or their
respective affiliates, including loans by our officers and directors, will be on terms believed by
us to be no less favorable to us than are available from unaffiliated third parties. Such
transactions or loans, including any forgiveness of loans, will require
prior approval by a majority of our disinterested independent directors (to the extent we
have any) or the members of our board who do not have an interest in the transaction, in either
case who had access, at our expense, to our attorneys or independent legal counsel. We will not
enter into any such transaction unless our disinterested independent directors (or, if there are
no independent directors, our disinterested directors) determine that the terms of such
transaction are no less favorable to us than those that would be available to us with respect to
such a transaction from unaffiliated third parties.
Director Independence
Beginning one year after our initial public offering, the NYSE Amex requires
that a majority of our board must be composed of independent directors, which is defined
generally as a person other than an officer or employee of the company or its subsidiaries or any
other individual having a relationship, which, in the opinion of the companys board of directors
would interfere with the directors exercise of independent judgment in carrying out the
responsibilities of a director.
Upon consummation of our initial public offering, Mr. Miller and Mr. Hyde became our
independent directors.
We intend to expand our Board to include an additional director who will be independent for this
purpose. Such person will be elected by the Board or be nominated at our next annual meeting at which directors are elected.
Any affiliated transactions will be on terms no less favorable to us than could be obtained
from independent parties. Any affiliated transactions must be approved by a majority of our
independent and disinterested directors (to the extent that we have any).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
From October 17, 2007 to January 8, 2008, GGK acted as our independent registered public
accounting firm. On January 8, 2008, we dismissed Goldstein Golub Kessler LLP (GGK) and engaged
Eisner LLP (Eisner) as our new independent registered public accounting firm. The following is a
summary of fees paid to GGK and Eisner for services rendered:
Audit Fees
The aggregate fees billed for professional services rendered by GGK for the period ended
December 31, 2007 for (a) the audit of our financial statements dated as of October 23, 2007 and
filed on our current report on Form 8-K on October 29, 2007 and (b) reviews of SEC filings amounted
to approximately $47,500.
The aggregate fees incurred for professional services rendered by Eisner for (a) the audit of
our annual financial statements and (b) the review of quarterly financial statements, amounted to
approximately $40,000 for the period ended December 31, 2007, and $60,000 for the year ended December
31, 2008.
Audit-Related Fees
We did not receive audit-related services that are not reported as Audit Fees for the fiscal
period ended December 31, 2007 and the year ended December 31, 2008.
Tax Fees
During
the year ended December 31, 2008 and the period ended December 31, 2007, we did not pay
any fees to Eisner or GGK related to tax compliance and advice.
All Other Fees
For the year ended December 31, 2008 we engaged Eisner and its affiliate to perform financial
due diligence in regard to a potential acquisition. Fees of $121,835 were paid to Eisner and and
such affiliate for these services. We did
not receive products and services from Eisner or GGK other than those discussed above, for the
year ended December 31, 2008 or the period ended December 31, 2007.
41
Pre-Approval Policy
The audit committee pre-approved all auditing services and permitted non audit-services to be
performed for us by Eisner including the fees and terms thereof (subject to the de minimis
exceptions for non-audit service described in the Exchange Act which are approved by the audit
committee prior to the completion of the audit). The audit committee may form and delegate
authority to grant preapprovals of audit and permitted non-audit services, provided that decisions
of such subcommittee to grant pre-approvals shall be presented to the full audit committee at its
next scheduled meeting.
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Report:
Financial Statements
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
|
Statement of Operations |
|
|
|
Statement of Changes in Stockholders Equity |
|
|
|
Statement of Cash Flows |
|
|
|
Notes to Financial Statements |
Financial Statement Schedules
All schedules are omitted for the reason that the information is included in the financial
statements or the notes thereto or that they are not required or are not applicable.
(b) Exhibits:
We hereby file as part of this Annual Report on Form 10-K the Exhibits listed in the attached
Exhibit Index.
|
|
|
|
|
Exhibit No. |
|
Description |
|
1.1 |
|
|
Form of Underwriting Agreement.1 |
|
|
|
|
|
|
3.1 |
|
|
Form of Amended and Restated Certificate of Incorporation. 3 |
|
|
|
|
|
|
3.2 |
|
|
By-laws. 3 |
|
|
|
|
|
|
4.1 |
|
|
Specimen Unit Certificate. 3 |
|
|
|
|
|
|
4.2 |
|
|
Specimen Common Stock Certificate. 3 |
|
|
|
|
|
|
4.3 |
|
|
Specimen Warrant Certificate. 3 |
|
|
|
|
|
|
4.4 |
|
|
Form of Warrant Agreement between Continental Stock Transfer & Trust Company and the Registrant.
2 |
|
|
|
|
|
|
4.5 |
|
|
Form of Unit Purchase Option to be granted to Representative. 2 |
|
|
|
|
|
|
10.1 |
|
|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and Theodore S. Green. 4 |
|
|
|
|
|
|
10.2 |
|
|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and Malcolm Bird. 4 |
|
|
|
|
|
|
10.3 |
|
|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and Jonathan F. Miller. 4 |
42
|
|
|
|
|
Exhibit No. |
|
Description |
|
10.4 |
|
|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and John W. Hyde. 2 |
|
|
|
|
|
|
10.5 |
|
|
Form of Letter Agreement among the Registrant, Pali Capital, Inc., the Sara Green 2007 GST Trust and
Jeffrey Bolson, as Trustee. 2 |
|
|
|
|
|
|
10.6 |
|
|
Form of Letter Agreement among the Registrant, Pali Capital, Inc., the Blair Green 2007 GST Trust and
Jeffrey Bolson, as Trustee. 2 |
|
|
|
|
|
|
10.7 |
|
|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and the John W. Hyde Living
Trust. 2 |
|
|
|
|
|
|
10.8 |
|
|
Form of Investment Management Trust Agreement between Continental Stock Transfer & Trust Company and
the Registrant. 4 |
|
|
|
|
|
|
10.9 |
|
|
Form of Securities Escrow Agreement between the Registrant, Continental Stock Transfer &
Trust Company and the Initial Stockholders. 3 |
|
|
|
|
|
|
10.10 |
|
|
Form of Administrative Service Agreement among Theodore S. Green, Malcolm Bird and the
Registrant. 3 |
|
|
|
|
|
|
10.11 |
|
|
Promissory Note issued to Theodore S. Green. 3 |
|
|
|
|
|
|
10.12 |
|
|
Form of Registration Rights Agreement among the Registrant and the Stockholders. 3 |
|
|
|
|
|
|
10.13 |
|
|
Private Placement Purchase Agreement between the Registrant and Theodore S. Green. 4 |
|
|
|
|
|
|
10.14 |
|
|
Private Placement Purchase Agreement between the Registrant and Malcolm Bird. 4 |
|
|
|
|
|
|
10.15 |
|
|
Private Placement Purchase Agreement between the Registrant and Jonathan F. Miller.5 |
|
|
|
|
|
|
10.16 |
|
|
Private Placement Purchase Agreement between the Registrant and the John W. Hyde Living
Trust.5 |
|
|
|
|
|
|
10.17 |
|
|
Form of Agreement between Theodore S. Green and Malcolm Bird.5 |
|
|
|
|
|
|
14.1 |
|
|
Form of Code of Ethics. 4 |
|
|
|
|
|
|
31.1 |
|
|
Certification by Co-Chief Executive Officer and Interim Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2 |
|
|
Certification by Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.1 |
|
|
Certification by Co-Chief Executive Officers and Interim Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
99.1 |
|
|
Form of Audit Committee Charter. 3 |
|
|
|
|
|
|
99.2 |
|
|
Form of Nominating Committee Charter. 3 |
|
|
|
|
|
|
99.3 |
|
|
Form of Compensation Committee Charter.3 |
|
|
|
(1) |
|
Incorporated by reference to the corresponding exhibit filed with Amendment No. 4 to
the Registration Statement on Form S-1 (File No. 333-143856) ) filed with the SEC on October 12,
2007. |
|
(2) |
|
Incorporated by reference to the corresponding exhibit filed with Amendment
No. 2 to the Registration Statement on Form S-1 (File No. 333-143856) ) filed with the SEC on
September 11, 2007. |
|
(3) |
|
Incorporated by reference to the corresponding exhibit filed with the Registration
Statement on Form S-1 (File No. 333-143856) ) filed with the SEC on June 18, 2007. |
|
(4) |
|
Incorporated by reference to the corresponding exhibit filed with Amendment
No. 1 to the Registration Statement on Form S-1 (File No. 333-143856)) filed with the SEC on July
27, 2007. |
|
(5) |
|
Incorporated by reference to the corresponding
exhibit filed with Amendment No. 3 to the Registration
Statement on Form S-1 (File No. 333-143856)) filed with the
SEC on October 10, 2007. |
43
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 to F-14 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
TM Entertainment and Media, Inc.
We have audited the accompanying balance sheets of TM Entertainment and Media, Inc (a
development stage company) (the Company) as of December 31, 2008 and 2007 and the related
statements of operations, stockholders equity, and cash flows for the year ended December 31,
2008, the period from May 1, 2007 (inception) through December 31, 2007 and for the period from May
1, 2007 (inception) through December 31, 2008. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal controls over financial reporting. Our audits include consideration of internal
controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2008 and 2007, and the results
of its operations and its cash flows for the year ended December 31, 2008, the period from May 1,
2007 (inception) through December 31, 2007 and for the period from May 1, 2007 (inception) through
December 31, 2008, in conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1, the Companys Certificate of Incorporation
provides for mandatory liquidation of the Company in the event that the Company does not consummate
a business combination within 24 months of the Companys initial public offering. The possibility of
such business combination not being consummated within the required time raises substantial doubt
about the Companys ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
|
|
|
/s/ Eisner LLP
Eisner LLP
|
|
|
New York, New York
March 31, 2009
F-2
TM ENTERTAINMENT AND MEDIA, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
159,689 |
|
|
$ |
465,373 |
|
Cash held in trust available for taxes |
|
|
15,770 |
|
|
|
|
|
Prepaid expenses |
|
|
89,776 |
|
|
|
199,930 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
265,235 |
|
|
|
665,303 |
|
|
|
|
|
|
|
|
|
|
Cash held in trust restricted |
|
|
81,119,299 |
|
|
|
80,978,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
81,384,534 |
|
|
$ |
81,644,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
414,563 |
|
|
$ |
299,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
414,563 |
|
|
|
299,025 |
|
|
|
|
|
|
|
|
|
|
Deferred underwriting fee |
|
|
3,281,600 |
|
|
|
3,281,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,696,163 |
|
|
|
3,580,625 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, subject to possible conversion of 3,075,475 shares |
|
|
24,285,542 |
|
|
|
24,285,542 |
|
|
|
|
|
|
|
|
|
|
Interest income attributable to common stock, subject to possible
conversion (net of taxes of $4,731 and $0 respectively) |
|
|
42,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock 1,000,000 shares authorized,$.001 par value, none outstanding |
|
|
|
|
|
|
|
|
Common stock 40,000,000 authorized,$.001 par value, 12,505,000 outstanding
(which includes 3,075,475 shares subject to possible conversion) |
|
|
12,505 |
|
|
|
12,505 |
|
Additional paid-in capital |
|
|
53,575,335 |
|
|
|
53,575,335 |
|
(Deficit) retained earnings accumulated during the development stage |
|
|
(227,147 |
) |
|
|
190,096 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
53,360,693 |
|
|
|
53,777,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
81,384,534 |
|
|
$ |
81,644,103 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
F-3
TM ENTERTAINMENT AND MEDIA, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period |
|
|
For the period |
|
|
|
For the year |
|
|
May 1, 2007 |
|
|
May 1, 2007 |
|
|
|
ended |
|
|
(inception) to |
|
|
(inception) to |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formation and operating expenses |
|
$ |
(1,993,784 |
) |
|
$ |
(295,598 |
) |
|
$ |
(2,289,382 |
) |
Interest expense |
|
|
|
|
|
|
(2,664 |
) |
|
|
(2,664 |
) |
Interest income |
|
|
1,618,677 |
|
|
|
488,358 |
|
|
|
2,107,035 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes |
|
|
(375,107 |
) |
|
|
190,096 |
|
|
|
(185,011 |
) |
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(375,107 |
) |
|
|
190,096 |
|
|
|
(185,011 |
) |
Less: interest attributable to
common stock subject to possible
conversion (net of taxes of
$4,731, $0 and $4,731
respectively) |
|
|
(42,136 |
) |
|
|
|
|
|
|
(42,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stock not subject to
possible conversion |
|
$ |
(417,243 |
) |
|
$ |
190,096 |
|
|
$ |
(227,147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.03 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.03 |
) |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
12,505,000 |
|
|
|
5,389,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Pro-forma |
|
|
12,505,000 |
|
|
|
6,306,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding subject to possible
conversion: |
|
|
3,075,475 |
|
|
|
941,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share
attributable to common stock not
subject to possible conversion: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Pro-forma |
|
$ |
(0.04 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
F-4
TM ENTERTAINMENT AND MEDIA, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
Statements of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
During |
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Development |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stage |
|
|
Equity |
|
Issuance of common stock to initial
stockholders on
May 1, 2007 at $.011 per share |
|
|
2,250,000 |
|
|
$ |
2,250 |
|
|
$ |
22,750 |
|
|
|
|
|
|
$ |
25,000 |
|
Sale of Private Placement Warrants |
|
|
|
|
|
|
|
|
|
|
2,100,000 |
|
|
|
|
|
|
|
2,100,000 |
|
Sale of 10,255,000 units through
public offering (net of underwriters
discount and offering expenses)
Including 3,075,475 shares subject to
possible Conversion |
|
|
10,255,000 |
|
|
|
10,255 |
|
|
|
75,738,027 |
|
|
|
|
|
|
|
75,748,282 |
|
Proceeds from sale of underwriters
purchase option |
|
|
|
|
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
100 |
|
Proceeds subject to possible conversion |
|
|
|
|
|
|
|
|
|
|
(24,285,542 |
) |
|
|
|
|
|
|
(24,285,542 |
) |
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
190,096 |
|
|
|
190,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
12,505,000 |
|
|
|
12,505 |
|
|
|
53,575,335 |
|
|
|
190,096 |
|
|
|
53,777,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of trust fund relating to
common stock subject to possible
conversion (net of taxes of $4,731) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended December
31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(375,107 |
) |
|
|
(375,107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
12,505,000 |
|
|
$ |
12,505 |
|
|
$ |
53,575,335 |
|
|
$ |
(227,147 |
) |
|
$ |
53,360,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
F-5
TM ENTERTAINMENT AND MEDIA, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period |
|
|
For the period |
|
|
|
For the year |
|
|
May 1, 2007 |
|
|
May 1, 2007 |
|
|
|
ended |
|
|
(inception) to |
|
|
(inception) to |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(375,107 |
) |
|
$ |
190,096 |
|
|
$ |
(185,011 |
) |
Decrease (increase) in prepaid expenses |
|
|
110,154 |
|
|
|
(199,930 |
) |
|
|
(89,776 |
) |
Increase in accounts payable and accrued
liabilities |
|
|
115,538 |
|
|
|
271,025 |
|
|
|
414,563 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(149,415 |
) |
|
|
261,191 |
|
|
|
139,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash placed in Trust |
|
|
(140,499 |
) |
|
|
(80,978,800 |
) |
|
|
(81,119,299 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(140,499 |
) |
|
|
(80,978,800 |
) |
|
|
(81,119,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of shares of common stock
to Initial Stockholders |
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
Proceeds from sale of units to public |
|
|
|
|
|
|
82,040,000 |
|
|
|
82,040,000 |
|
Proceeds from private placement of warrants |
|
|
|
|
|
|
2,100,000 |
|
|
|
2,100,000 |
|
Proceeds from note payable to Initial
Stockholder |
|
|
|
|
|
|
100,000 |
|
|
|
100,000 |
|
Repayment of note payable to Initial
Stockholder |
|
|
|
|
|
|
(100,000 |
) |
|
|
(100,000 |
) |
Proceeds from sale of underwriters purchase
option |
|
|
|
|
|
|
100 |
|
|
|
100 |
|
Payment of deferred offering costs |
|
|
|
|
|
|
(2,982,118 |
) |
|
|
(3,110,118 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities |
|
|
|
|
|
|
81,182,982 |
|
|
|
81,054,982 |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash |
|
|
(289,914 |
) |
|
|
465,373 |
|
|
|
175,459 |
|
Cash at beginning of period |
|
|
465,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
175,459 |
|
|
$ |
465,373 |
|
|
$ |
175,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non cash
financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual of deferred underwriting fee |
|
$ |
|
|
|
$ |
3,281,600 |
|
|
$ |
3,281,600 |
|
Accrual of deferred offering costs |
|
$ |
|
|
|
$ |
28,000 |
|
|
$ |
|
|
The accompanying notes are an integral part of the financial statements.
F-6
TM ENTERTAINMENT AND MEDIA, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
Notes to Financial Statements
1. Organization and Business Operations/Going Concern Considerations
TM Entertainment and Media, Inc. (the Company) was incorporated in Delaware on May 1, 2007
for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar
business combination with an operating business in the entertainment, media, digital and
communications industry.
At December 31, 2008, the Company had not yet commenced any operations. All activity through
December 31, 2008 relates to the Companys formation and the public offering (the Offering)
described below, and activities relating to identifying and evaluating prospective acquisition
candidates and is subject to the risks associated with activities of development stage companies.
The Company has selected December 31 as its fiscal year-end.
The registration statement for the Company (described in Note 2) was declared effective
October 17, 2007. The Company consummated the Offering on October 23, 2007, and received net
proceeds of $77,848,282, including $2,100,000 of proceeds from the private placement (the Private
Placement) sale of 2,100,000 insider warrants to the officers and directors of the Company, and
their affiliates. The insider warrants purchased by these individuals and their affiliates are
identical to the warrants underlying the Units sold in the Offering (see Note 3) except that the
insider warrants will be exercisable on a cashless basis and will not be redeemable by the Company
so long as they are still held by the purchasers or their affiliates. The purchasers of the insider
warrants have agreed that they will not sell or transfer the insider warrants (except in certain
cases) until 60 days after the consummation of the Companys business combination. The sale of the
warrants to management will not result in the recognition of any stock-based compensation expense
because they were sold above fair market value.
The Companys management has broad discretion with respect to the specific application of the
net proceeds of the Offering, although substantially all of the net proceeds of the Offering are
intended to be generally applied toward consummating a business combination with an operating
business (Business Combination). Furthermore, there is no assurance that the Company will be able
to successfully affect a Business Combination. Following the closing of the Offering and Private
Placement, $80,978,800, including $3,281,600 of the underwriters discount as described in Note 2
has been and continues to be held in a trust account (Trust Account) and will be invested in
United States government securities within the meaning of Section 2(a)(16) of the Investment
Company Act of 1940 having a maturity of 180 days or less or in money market funds meeting certain
conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 until the earlier
of (i) the consummation of its first Business Combination and (ii) liquidation of the Company. The
placing of funds in the Trust Account may not protect those funds from third party claims against
the Company. Although the Company will seek to have all vendors and service providers (which would
include any third parties engaged by the Company to assist it in any way in connection with the
Companys search for a target business) and prospective target businesses execute agreements with
the Company waiving any right, title, interest or claim of any kind in or to any monies held in the
Trust Account, there is no guarantee that they will execute such agreements. Nor is there any
guarantee that, even if such entities execute such agreements with the Company, they will not seek
recourse against the Trust Account or that a court would not conclude that such agreements are not
legally enforceable. The Companys Chairman of the Board and Co-Chief Executive Officer, and the
Companys Co-Chief Executive Officer have agreed that they will be liable under certain
circumstances to ensure that the proceeds in the Trust Account are not reduced by the claims of
target businesses or claims of vendors or other entities that are owed money by the Company for
services rendered or contracted for or products
sold to the Company. However, there can be no assurance that they will be able to satisfy
those obligations. Furthermore, they will not have any personal liability as to any claimed amounts
owed to a third party who executed a waiver (including a prospective target business).
F-7
The remaining net proceeds, initially $100,000, (not held in the Trust Account) were used to
pay for business, legal and accounting due diligence on prospective acquisitions and continuing
general and administrative expenses. Additionally, up to an aggregate of $1,500,000 of interest
earned on the Trust Account balance has been released to the Company to fund working capital
requirements and additional amounts will be released to the Company as necessary to satisfy income
or other tax obligations.
The Company, after signing a definitive agreement for the acquisition of a target business, is
required to submit such transaction for stockholder approval. In the event that stockholders owning
30% or more of the shares sold in the Offering vote against the Business Combination and exercise
their conversion rights described below, the Business Combination will not be consummated. All of
the Companys stockholders prior to the Offering, including all of the officers and directors of
the Company (Initial Stockholders), have agreed to vote their initial shares of Common Stock in
accordance with the vote of the majority in interest of all other stockholders of the Company
(Public Stockholders) with respect to any Business Combination. After consummation of a Business
Combination, these voting safeguards will no longer be applicable.
With respect to a Business Combination which is approved and consummated, any Public
Stockholder who voted against the Business Combination may demand that the Company convert his,
hers, or its shares. The per share conversion price will equal the amount in the Trust Account,
calculated as of two business days prior to the consummation of the proposed Business Combination,
divided by the number of shares of Common Stock held by Public Stockholders at the consummation of
the Proposed Offering, approximately $7.90 per share. Accordingly, Public Stockholders holding
29.99% of the aggregate number of shares owned by all Public Stockholders may seek conversion of
their shares in the event of a Business Combination. Such Public Stockholders are entitled to
receive their per share interest in the Trust Account computed without regard to the shares held by
Initial Stockholders. Accordingly, a portion of the net proceeds from the Offering (29.99% of the
amount held in Trust Account, including the deferred portion of the underwriters discount) has
been classified as common stock subject to possible conversion in the accompanying financial
statements.
The Companys Amended and Restated Certificate of Incorporation provides that the Company will
continue in existence only until 24 months from the effective
date of the initial public offering. If the
Company has not completed a Business Combination by such date, its corporate existence will cease
and it will dissolve and liquidate for the purposes of winding up its affairs. In the event of
liquidation, it is likely that the per share value of the residual assets remaining available for
distribution (including Trust Account assets) will be less than the initial public offering price
per share in the Offering (assuming no value is attributed to the Warrants contained in the Units
sold in the Offering discussed in Note 2).
Going concern consideration As indicated in the accompanying financial statements, at
December 31, 2008 the Company had unrestricted cash of $159,689 and $398,793 in accrued expenses
exclusive of income taxes payable of $15,770. However, the Company has incurred and expects to
incur significant costs in pursuit of its acquisition plans which is in excess of its unrestricted cash available at December 31, 2008. In addition, there is no assurance
that the Company will successfully complete a Business Combination as required under the terms of the public offering and the Companys Certificate of Incorporation. If such
business combination is not consummated the Company will be forced to liquidate upon expiration of
this time constraint.
F-8
As of December 31, 2008 the Company withdrew $1,500,000 of interest
from the trust for operating expenses (excluding $446,710 of interest earned and used to pay
taxes). Since inception to
December 31, 2007 the Company has incurred $1,829,561 of operating expenses (excluding taxes)
of which $398,793 was payable as of December 31, 2008. The Company had cash available at December
31, 2008 of $159,689 for operating expenses. Therefore, at December 31, 2008, the Company has
incurred liabilities which exceed cash available. The Company expects to incur additional costs in
pursuit of its acquisition plans. The Company is seeking to obtain deferrals of payables from its
vendors, including its professional advisors except for its independent accountants. In the event the Company is unsuccessful in obtaining
these deferrals, it may seek additional financing, including loans from its Initial Stockholders.
These factors, among others, raise substantial doubt about the Companys ability to continue
operations as a going concern. The accompanying financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
Cash and cash equivalents The Company considers all highly liquid investments with
maturities of three months or less when purchased, to be cash equivalents. At December 31, 2008,
cash includes unrestricted cash for taxes of $15,770 in the trust fund.
Concentration of Credit Risk The Company maintains cash in a bank deposit account which, at
times, exceeds federally insured (FDIC) limits. The Company has not experienced any losses on this
account. The Companys Money Market account is currently guaranteed by the U.S. Department of
Treasury through April 30, 2009.
Net (Loss) Income Per Share Basic and diluted net (loss) income per share is computed by dividing net (loss) income
applicable to common stockholders by the weighted average number of common shares outstanding for
the period.
The Companys 12,355,000 outstanding warrants are contingently exercisable on the completion
of a business combination, provided there is an effective registration statement covering the
shares issuable upon exercise of the warrants. Hence, these are presented in the proforma diluted
EPS for the period ended December 31, 2007.
Pro forma diluted EPS includes the determinants of basic and diluted EPS plus to the extent
dilutive, the incremental number of shares of common stock to settle outstanding common stock
purchase warrants, as calculated using the treasury stock method. The 12,355,000 warrants
outstanding for the year ended December 31, 2008 were not included in the computation of pro-forma
dilutive loss per share because the net effect would have been anti-dilutive.
Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value Measurements The fair values of the Companys financial instruments reflect the
estimates of amounts that would be received from selling an asset in an orderly transaction between
market participants at the measurement date. The fair value estimates presented in this report are
based on information available to the Company as of December 31, 2008 and December 31, 2007.
In accordance with Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (SFAS 157), the Company applies a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be
used to measure fair value. The three levels are the following:
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Level 1 Quoted prices in active markets for identical assets or liabilities. |
|
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|
Level 2 Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other
inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities. |
|
|
|
Level 3 Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities. |
F-9
The fair value of cash and investments held in the trust account were estimated using Level 1
inputs and approximates the fair value because of their nature and respective duration.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159), which permits entities to choose to measure many financial
instruments and certain other items at fair value. SFAS 159 is effective for the first quarter of
2008. The Company did not have certain financial instruments to elect at fair value accounting; therefore,
the adoption of SFAS 159 did not have an impact on the Companys financial statements.
In October 2008, the FASB issued FASB Staff Position FAS 157-3, Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active (FSP 157-3), FSP 157-3 clarified
the application of FAS 157. FSP 157-3 demonstrated how the fair value of a financial asset is
determined when the market for that financial asset is inactive. FSP 157-3 was effective upon
issuance, including prior periods for which financial statements had not been issued. The
implementation of this standard did not have an impact on the Companys financial statements.
Recently Issued Accounting Pronouncements, Not Yet Effective
Noncontrolling Interest in Consolidated Financial Statements In December 2007, the FASB
issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements (SFAS 160).
SFAS 160 re-characterizes minority interests in consolidated subsidiaries as non-controlling
interests and requires the classification of minority interests as a component of equity. Under
SFAS 160, a change in control will be measured at fair value, with any gain or loss recognized in
earnings. The effective date for SFAS 160 is for annual periods beginning on or after December 15,
2008. Early adoption and retroactive application of SFAS 160 to fiscal years preceding the
effective date are not permitted. The Company will evaluate the impact of SFAS 160 on the
financial statements should it complete a business acquisition within its required timeframe (prior
to October 24, 2009).
Business Combinations In December 2007, FASB issued SFAS No. 141R, Business Combinations
(FASB 141R). FASB 141R replaces FASB Statement No. 141 Business Combinations but retains the
fundamental requirements in FASB 141. This statement defines the acquirer as the entity that
obtains control of one or more businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control. FASB 141R also requires that an
acquirer recognize the assets acquired, the liabilities assumed and any noncontrolling interest in
the acquiree at the acquisition date, measured at their fair values as of that date. In addition,
this statement requires that the acquirer in a business combination achieved in stages to recognize
the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at
the full amounts of their fair values. FASB 141R is applied prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. An entity may not apply the standard before that date. FASB 141R will be applied
prospectively for acquisitions beginning in 2009 or thereafter.
F-10
2. Initial Public Offering
On October 17, 2007 the Company sold 10,255,000 Units in the Offering at a price of $8.00 per
Unit, including 1,255,000 Units of their over-allotment option. Each Unit consists of one share of
the Companys common stock and one redeemable common stock purchase Warrant. Each Warrant will
entitle the holder to purchase from the Company one share of common stock at an exercise price of
$5.50 commencing on the later of the completion of a Business Combination and one year from the
effective date of the Offering (October 17, 2007) and expiring four years from the effective date
of the Offering. The Company may redeem the Warrants, at a price of $.01 per Warrant upon 30 days
notice while the Warrants are exercisable, only in the event that the last sale price of the common
stock is at least $11.50 per share for any 20 trading days within a 30 trading day period ending on
the third day prior to the date on which notice of redemption is given. In accordance with the
warrant agreement relating to the Warrants sold and issued in the Offering, the Company is only
required to use its best efforts to maintain the effectiveness of the registration statement
covering the Warrants. The Company will not be obligated to deliver securities, and there are no
contractual penalties for failure to deliver securities, if a registration statement is not
effective at the time of exercise. Additionally, in the event that a registration is not effective
at the time of exercise, the holder of such Warrant will not be entitled to exercise such Warrant
and in no event (whether in the case of a registration statement not being effective or otherwise)
will the Company be required to net cash settle the warrant exercise. Consequently, the Warrants
may expire unexercised, unredeemed and worthless.
The Company paid the underwriters in the Offering an underwriting discount of 7% of the gross
proceeds of the Offering. However, the underwriters have agreed that 4% of the gross proceeds will
be held in the Trust Account and will not be payable unless and until the Company completes a
Business Combination and have waived their right to receive such payment upon the Companys
liquidation if it is unable to complete a Business Combination.
The Company sold to Pali Capital, Inc. (Pali), as representatives of the underwriters, for
$100, an option to purchase up to a total of 700,000 Units at $10.00 per Unit. The Units issuable
upon the exercise of this option are identical to those sold in the Offering. This option is
exercisable at $10.00 per Unit, and may be exercised on a cashless basis, commencing on the later
of the consummation of a Business Combination and one year from the date of the effectiveness of
the Offering and expiring five years from the date of the effectiveness of the Offering. The
estimated fair value of this option is approximately $2,207,000, $3.15 per Unit, using a
Black-Scholes option-pricing model. The fair value of the option granted is estimated as of the
date of the grant using the following assumptions: (1) expected volatility of 45.2%, (2) risk-free
discount rate of 4.95%, (3) expected life of five years and (4) dividend rate of zero. The
volatility is based on the average five year daily volatility of the 20 smallest (by market
capitalization) media companies in the Russell 2000 Index. Although an expected life of five years
was used in the calculation, if the Company does not consummate a Business Combination within the
prescribed time period and automatically dissolves and subsequently liquidates the trust account,
the option will become worthless.
3. Related Party Transactions
The Company may occupy office space provided by the Initial Stockholders, or an affiliate of
one of the Initial Stockholders, or a third party. Such Initial Stockholders, affiliate or third
party has agreed that, until the Company consummates a Business Combination, it will make such
office space, as well as certain office and secretarial services, available to the Company, as may
be required by the Company from time to time. The Company has agreed that it will pay up to $7,500
per month for such services commencing on the effective date of the Offering. However, such Initial
Stockholders have elected to receive $6,400 per month instead. For the year ended December 31,
2008, the Company has incurred $76,800 of expense relating to this agreement which is included in
formation and operating expenses in the accompanying Statements of Operations, of which $44,800 was payable as of December 31, 2008. For the period from
May 1, 2007 (inception) through December 31, 2007 the Company has incurred $15,897 of expense
relating
to this agreement which is included in formation and operating expenses in the accompanying
Statement of Operations.
F-11
Pursuant to letter agreements which the Initial Stockholders have entered into with the
Company and the underwriters, the Initial Stockholders waived their right to receive distributions
with respect to their initial shares upon the Companys liquidation.
The Companys officers and directors purchased a total of 2,100,000 Warrants (Insider
Warrants) at $1.00 per Warrant (for an aggregate purchase price of $2,100,000) concurrently with
the consummation of the Offering pursuant to a private placement agreement with the Company. All of
the proceeds received from these initial purchases were placed in the Trust Account. The Insider
Warrants are identical to the Warrants underlying the Units included in the Offering except that
the Insider Warrants may not be called for redemption and the Insider Warrants are exercisable on a
cashless basis, at the holders option, so long as such securities are held by such purchaser or
his affiliates. Furthermore, the purchasers have agreed that the Insider Warrants will not be sold
or transferred by them, except for estate planning purposes, until after the Company has completed
a Business Combination. The sale of the warrants to management did not result in the recognition of
any stock-based compensation expense because they were sold above fair market value. The holder of
these Insider Warrants will not have any right to any liquidation distributions with respect to
shares underlying these warrants if the Company fails to consummate a Business Combination, in
which event these warrants will expire worthless.
The Initial Stockholders and the holders of the Insider Warrants (or underlying securities)
will be entitled to registration rights with respect to their initial shares or Insider Warrants
(or underlying securities) pursuant to an agreement signed on the date of the Offering. The
holders of the majority of these securities may elect to exercise these registration rights with
respect to such securities at any time after the Company consummates a Business Combination. The
holders have certain piggy-back registration rights with respect to registration statements filed
after the Companys consummation of a Business Combination. The Insider Warrants may be exercisable
for unregistered shares of common stock even if no registration relating to the common stock
issuable upon exercise of the warrants is effective and current.
4. Income Taxes
Deferred income tax assets and liabilities are computed for differences between the financial
statements and tax basis of assets and liabilities that will result in future taxable or deductible
amounts and are based on enacted tax laws and rates applicable to the periods in which the
differences are expected to effect taxable income. Valuation allowances are established when
necessary to reduce deferred income tax assets to the amount expected to be realized.
Significant components of the Companys deferred tax assets are as follows:
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|
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December 31, |
|
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December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Deferred tax benefit |
|
$ |
1,020,000 |
|
|
$ |
116,000 |
|
Less: valuation allowance |
|
|
(1,020,000 |
) |
|
|
(116,000 |
) |
|
|
|
|
|
|
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Total |
|
$ |
|
|
|
$ |
|
|
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|
|
|
|
|
|
The Company is considered in the development stage for income tax reporting purposes. Federal
income tax regulations require that the Company defer certain expenses for tax purposes. Therefore,
the Company has recorded a deferred income tax asset of $1,020,000 for deferred expenses. The
Company believes that it is not
more likely than not that it will be able to realize this deferred tax asset in the future
and, therefore, it has provided a valuation allowance against this deferred tax asset.
F-12
The effective tax rate differs from the statutory rate of 34% due to state and local taxes and
deferred start up costs, an increase in the valuation allowance and permanent differences relating
to tax free interest income.
The Company has adopted the provisions of the Financial Accounting Standards Board (FASB)
Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement No. 109. FIN 48 contains a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. The first
step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to
measure the tax benefit as the largest amount which is more than 50% likely of being realized upon
ultimate settlement. The Company considers many factors when evaluating and estimating its tax
positions and tax benefits, which may require periodic adjustments and which may not accurately
anticipate actual outcomes. Accordingly, the Company reports a liability for unrecognized tax
benefits resulting from the uncertain tax positions taken or expected to be taken in a tax return
and recognizes interest and penalties, if any, related to uncertain tax positions in income tax
expense. The Company intends to classify any future expense for income tax related interest and
penalties as component of tax expense. The adoption of FIN 48 had no impact on the Companys
financial position.
5. Common Stock Subject to Possible Redemption
The Company will not proceed with a Business Combination if Public Stockholders owning 30% or
more of the shares sold in the Offering vote against the Business Combination and exercise their
redemption rights. Accordingly, the Company may effect a Business Combination only if stockholders
owning less than 29.99% of the shares sold in this Offering exercise their redemption rights. If
this occurred, the Company would be required to redeem for cash up to 29.99% of the 10,255,000
shares of common stock sold in the Offering, or 3,075,475 shares of common stock, at an initial
per-share redemption price of $7.90 (plus a portion of the interest earned on the trust account,
but net of (i) taxes payable on interest earned and (ii) up to $1,500,000 of interest income
released to the Company to fund its working capital), which includes $0.32 per share of deferred
underwriting discount and commissions.
The actual per-share redemption price will be equal to:
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the initial amount in the trust account which includes the amount attributable
to deferred underwriting discounts and commissions and including all accrued interest
(less taxes payable and up to $1,500,000 of interest income released to the Company to
fund its working capital), as of two business days prior to the proposed consummation
of the Business Combination, divided by |
|
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|
the number of shares of common stock sold in the Offering. |
The dissenting stockholders will receive their proportionate share of the deferred underwriting
discounts and commissions and the underwriters will be paid the full amount of the deferred
underwriting fees at the time of the consummation of the initial business combination. The Company
will be responsible for such payments to both the converting stockholders and underwriters.
F-13
6. Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations,
voting and other rights and preferences as may be determined from time to time by the Board of
Directors.
The agreement with the underwriters prohibits the Company, prior to a Business Combination,
from issuing preferred stock which participates in the proceeds of the Trust Account or which votes
as a class with the Common Stock on a Business Combination.
7. Subsequent Events
In the first quarter of 2009, the Company withdrew $80,770 of interest earned on the funds
held in the trust account for the purpose of paying 2008 Franchise taxes and to pay 2009 estimated Franchise and
Capital taxes.
F-14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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TM ENTERTAINMENT AND MEDIA, INC.
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By: |
/s/ Theodore S. Green
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Name: |
Theodore S. Green |
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Title: |
Chairman, Co-Chief Executive Officer and
interim Chief Financial Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
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Name |
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Position |
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Date |
/s/ Theodore S. Green
Theodore S. Green
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Chairman, Co-Chief Executive
Officer, interim Chief Financial
Officer and Director (principal
executive officer and principal
financial and
accounting
officer)
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March 31, 2009 |
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Co-Chief Executive Officer and
Director (principal executive officer)
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March 31, 2009 |
Malcolm Bird |
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Director
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March 31, 2009 |
Jonathan F. Miller |
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Director
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March 31, 2009 |
John W. Hyde |
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EXHIBIT INDEX
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|
Exhibit No. |
|
Description |
|
1.1 |
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|
Form of Underwriting Agreement.1 |
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3.1 |
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|
Form of Amended and Restated Certificate of Incorporation. 3 |
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3.2 |
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|
By-laws. 3 |
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4.1 |
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|
Specimen Unit Certificate. 3 |
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4.2 |
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Specimen Common Stock Certificate. 3 |
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4.3 |
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Specimen Warrant Certificate. 3 |
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4.4 |
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|
Form of Warrant Agreement between Continental Stock Transfer & Trust Company and the Registrant.
2 |
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4.5 |
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|
Form of Unit Purchase Option to be granted to Representative. 2 |
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|
10.1 |
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|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and Theodore S. Green. 4 |
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10.2 |
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|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and Malcolm Bird. 4 |
|
|
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10.3 |
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|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and Jonathan F. Miller. 4 |
|
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10.4 |
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|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and John W. Hyde. 2 |
|
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10.5 |
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|
Form of Letter Agreement among the Registrant, Pali Capital, Inc., the Sara Green 2007 GST Trust and
Jeffrey Bolson, as Trustee. 2 |
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10.6 |
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|
Form of Letter Agreement among the Registrant, Pali Capital, Inc., the Blair Green 2007 GST Trust and
Jeffrey Bolson, as Trustee. 2 |
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10.7 |
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|
Form of Letter Agreement among the Registrant, Pali Capital, Inc. and the John W. Hyde Living
Trust. 2 |
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10.8 |
|
|
Form of Investment Management Trust Agreement between Continental Stock Transfer & Trust Company and
the Registrant. 4 |
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|
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|
10.9 |
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|
Form of Securities Escrow Agreement between the Registrant, Continental Stock Transfer &
Trust Company and the Initial Stockholders. 3 |
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|
10.10 |
|
|
Form of Administrative Service Agreement among Theodore S. Green, Malcolm Bird and the
Registrant. 3 |
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10.11 |
|
|
Promissory Note issued to Theodore S. Green. 3 |
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|
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10.12 |
|
|
Form of Registration Rights Agreement among the Registrant and the Stockholders. 3 |
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|
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|
10.13 |
|
|
Private Placement Purchase Agreement between the Registrant and Theodore S. Green. 4 |
|
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10.14 |
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|
Private Placement Purchase Agreement between the Registrant and Malcolm Bird. 4 |
|
|
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|
Exhibit No. |
|
Description |
|
10.15 |
|
|
Private Placement Purchase Agreement between the Registrant and Jonathan F. Miller.5 |
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10.16 |
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|
Private Placement Purchase Agreement between the Registrant and the John W. Hyde Living
Trust.5 |
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10.17 |
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|
Form of Agreement between Theodore S. Green and Malcolm Bird.5 |
|
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|
14.1 |
|
|
Form of Code of Ethics. 4 |
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|
|
|
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|
31.1 |
|
|
Certification by Co-Chief Executive Officer and Interim Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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|
Certification by Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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|
Certification by Co-Chief Executive Officers and Interim Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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|
99.1 |
|
|
Form of Audit Committee Charter. 3 |
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|
|
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|
99.2 |
|
|
Form of Nominating Committee Charter. 3 |
|
|
|
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|
99.3 |
|
|
Form of Compensation Committee Charter.3 |
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|
|
(1) |
|
Incorporated by reference to the corresponding exhibit filed with Amendment No. 4 to
the Registration Statement on Form S-1 (File No. 333-143856) ) filed with the SEC on October 12,
2007. |
|
(2) |
|
Incorporated by reference to the corresponding exhibit filed with Amendment
No. 2 to the Registration Statement on Form S-1 (File No. 333-143856) ) filed with the SEC on
September 11, 2007. |
|
(3) |
|
Incorporated by reference to the corresponding exhibit filed with the Registration
Statement on Form S-1 (File No. 333-143856) ) filed with the SEC on June 18, 2007. |
|
(4) |
|
Incorporated by reference to the corresponding exhibit filed with Amendment
No. 1 to the Registration Statement on Form S-1 (File No. 333-143856)) filed with the SEC on July
27, 2007. |
|
(5) |
|
Incorporated by reference to the corresponding exhibit filed with Amendment No. 3 to
the Registration Statement on Form S-1 (File No. 333-143856)) filed with the SEC on October 10,
2007. |